Year ended March 31, 2018 ended March Year Annual Report Annual Report 2018 WEST RAILWAY COMPANY RAILWAY WEST JAPAN

WEST JAPAN RAILWAY COMPANY Annual Report 2018 Introduction Profile

West Japan Railway Company (JR-West) is one of the six passenger railway transport com- panies created in 1987, when Japanese National Railways was split up and privatized. In our railway operations, which are our core business activity, our railway network extends over a total of 5,008.7km. Making the most of the various forms of railway asset value rep- resented by our stations and railway network, we are also engaged in retail, real estate, and other businesses.

Contents

Introduction ESG Section Financial Section 1 Profile 34 ESG Initiatives 50 Consolidated 10-Year Financial Summary 2 At a Glance 36 ESG Hightlight 52 Management’s Discussion and Analysis 4 Overview 38 Safety of Operations 6 Financial Highlights 40 Customer Satisfaction 54 Operational and Other Risk Information 41 Coexistence with Communities 62 Financial Statements Business Strategy and Operating Results 42 Human Resources / Motivation 68 Analysis of JR-West Operations 43 Global Environment 8 The President’s Message 71 Investor Information 44 Corporate Governance 12 Review of the Medium-Term Manage- 72 Consolidated Subsidiaries 48 Organizational Structure ment Plan 2017 74 Corporate Data 18 Medium-Term Management Plan 2022 Corporate Philosophy Safety Charter

1 We, being conscious of our responsibility for pro- We, ever mindful of the railway accident that occurred tecting the truly precious lives of our customers, on April 25, 2005, conscious of our responsibility for and incessantly acting on the basis of safety first, protecting the truly precious lives of our customers, will build a railway that assures our customers of its and based on the conviction that ensuring safety is safety and reliability. our foremost mission, establish this Safety Charter.

2 We, with a central focus on railway business, will 1 Safety is ensured primarily through understanding fulfill the expectations of our customers, share- and complying with rules and regulations, a strict holders, employees and their families by support- execution of each individual’s duty, and improve- ing the lifestyles of our customers, and achieving ments in technology and expertise, and built up sustainable growth into the future. through ceaseless efforts.

3 We, valuing interaction with customers, and con- 2 The most important actions for ensuring safety are to sidering our business from our customers’ per- execute basic motions, to rigorously enforce safety spective, will provide comfortable services that checks, and to implement flawless communication. satisfy our customers. 3 To ensure safety, we must make a concerted effort, 4 We, together with our Group companies, will consis- irrespective of our organizational affiliation, rank, tently improve our service quality by enhancing tech- or assignment. nology and expertise through daily efforts and practices. 4 When uncertain about a decision, we must choose 5 We, deepening mutual understanding and respect- the most assuredly safe action. ing each individual, will strive to create a company at which employees find job satisfaction and in 5 Should an accident occur, our top priorities are to which they take pride. prevent concomitant accidents, and to aid passengers.

6 We, acting in a sincere and fair manner in compli- ance with the spirit of legal imperatives, and work- ing to enhance corporate ethics, will seek to be a company trusted by communities and society.

Cautionary Statement with Respect to Forward-Looking Statements This annual report contains forward-looking statements that are based on JR-West’s current • expenses, liability, loss of revenue, or adverse publicity associated with property or casualty losses; expectations, assumptions, estimates, and projections about its business, industry, and capital • economic downturn, deflation, and population decreases; markets around the world. • adverse changes in laws, regulations, and government policies in Japan; These forward-looking statements are subject to various risks and uncertainties. Generally, these • service improvements, price reductions, and other strategies undertaken by competitors such as forward-looking statements can be identified by the use of forward-looking terminology such as other passenger railway and airline companies; “may,” “will,” “expect,” “anticipate,” “plan,” or similar words. • earthquake and other natural disaster risks; and These statements discuss future expectations, identify strategies, contain projections of results of • failure of computer telecommunications systems disrupting railway or other operations. operations or of JR-West’s financial condition, or state other forward-looking information. All forward-looking statements in this annual report are made as of September 2018 based on Known or unknown risks, uncertainties, and other factors could cause the actual results to differ information available to JR-West as of September 2018, and JR-West does not undertake to update materially from those contained in any forward-looking statements. JR-West cannot promise that the or revise any of its forward-looking statements or reflect future events or circumstances. expectations expressed in these forward-looking statements will turn out to be correct. JR-West’s Future compensation and other expenses related to the accident that occurred actual results could be materially different from and worse than expectations. on April 25, 2005 are difficult to estimate reasonably at this time, and so have not been included in Important risks and factors that could cause actual results to be materially different from JR-West’s forecasts. expectations include, but are not limited to:

Annual Report 2018 1 Introduction At a Glance

Western Japan

J ¥163trillion 42.6 million T GDP Population N

Kyoto T

T Shin- (Hyogo) N

Hiroshima O SO Hakata ()

Osaka

C

JR-West’s railway network covers 18 prefectures in the western half of the island of Honshu and the northern tip of the island of Kyushu, and comprises 20% of Japan’s land area. The area we serve is home to 42.6 million people, about 33% of the country’s population, and has a nominal GDP of ¥163 trillion.

Hiroshima

JR-West

Total route length Number of passengers Hakata (Fukuoka)

5,008.7km 1,913million

2 WEST JAPAN RAILWAY COMPANY Status of Development on the

Scheduled to open by March 31, 2023 Under Joetsu construction Shinkansen J Tourist destination ranking Kanazawa Toyama Joetsumyoko Fukui T Nagano Opened on Prefectures Hokuriku Line October 1, 1997 Tsuruga in the top 20 N 6 overhead viaduct Takasaki portion complete Among the 20 most popular tourist destinations in Japan are six western Japan prefectures, including and . Opened on March 14, 2015

Tokyo Visiting Rate by Prefecture (CY2017 Results) Kyoto TOsaka Number of responses: 40,213 T Ranking Prefectures Visit rate (%) Shin-Kobe 1 46.2 2 Osaka 38.7 (Hyogo) N Main Lines in the Kansai Urban Area 3 Chiba 36.0 4 Kyoto 25.9 Hiroshima O Omishiotsu 5 Fukuoka 9.8 SO 6 Aichi 8.9 7 Kanagawa 8.5 Hakata 8 7.7 (Fukuoka) Maibara 9 Okinawa 7.3 Nara 10 Nara 7.3 Tanigawa 11 Hyogo 5.5 Osaka Yamashina Kusatsu ... Kyoto 15 Hiroshima 3.0 Shin-Osaka Kameyama Aioi Gray shaded areas are JR-West’s operating area. Source: Japan Tourism Agency Kakogawa Tsuge Shin-Kobe Kyobashi Nara

Nishi-Akashi Kobe Tennoji Osaka Oji

Takada Kansai Airport

C Wakayama Annual number of foreign visitors was nearly Boundary Stations between JR-West and Other JR Tozai Line (Kyobashi–Amagasaki) JR Companies JR Yumesaki Line (Nishi-Kujo–Sakurajima) Shinkansen Line (Bullet Train) JR Takarazuka Line (Osaka–Sasayamaguchi) Intercity Lines (Kyoto–Sonobe) Regional Lines Gakkentoshi Line (Kyobashi–Kizu) Nara Line (Kyoto–Kizu) JR Kobe Line (Osaka–Himeji) Yamatoji Line (JR-–Kamo) million JR (Osaka–Kyoto) (Tennoji–Wakayama) 29 (Kyoto–Nagahama) (Hineno–Kansai Airport) (Yamashina–Omi-Shiotsu) (Hanaten–Kyuhoji) The number of inbound visitors to Japan was nearly 29 million in CY2017.

Osaka Nara Inbound Visitors to Japan (Millions of people) 8.61

2013 10.36

2014 13.41

2015 19.74

2016 24.04

2017 28.69 Kobe (Hyogo) Kyoto 2020 Target 40.00 2030 Target 0.00

Source: Japan National Tourism Organization

Annual Report 2018 3 Introduction Overview

Operating Revenues Revenues from Third Parties Operating Income (Year ended March 31, 2018) (Year ended March 31, 2018) Total Total ¥1,500.4billion ¥191.3billion

T O T O 63.4% 67.4%

R R 16.0% 3.8%

R E R E 9.3% 18.5%

O O 11.3% 10.3%

Transportation Operations

Shinkansen Kansai Urban Area Other Conventional Lines The Shinkansen operated by JR-West consists The Kansai Urban Area provides passenger JR-West’s other conventional lines consist of of the Sanyo Shinkansen, a high-speed intercity transport services to the densely populated limited express trains for intercity transport, passenger service between Shin-Osaka Station cities of Kyoto, Osaka, and Kobe and their local transport for commuting to and from in Osaka City and Hakata Station in Fukuoka surrounding areas. In fiscal 2018, JR-West work or school in such core urban areas as City, the Line, which is served a daily average of 4.2 million passen- Hiroshima and Okayama, and local lines one of the new Shinkansen lines, and the seg- gers in the Kansai Urban Area. through less populated areas. ment between Nagano Station and Kanazawa These passengers were mainly people Station, which opened on March 14, 2015. commuting to and from work or school. Along the Hokuriku Shinkansen Line, JR-West is the operating body for the segment between Joetsumyoko and Kanazawa.

History

1987. Apr 1994. Jun Sep 2005. Apr From Japanese National Railways to JR, Opening of the Kansai-Airport Line Grand opening of Building Accident occurring between Tsukaguchi founding of West Japan Railway Company and Amagasaki stations on the Fukuchiyama Line (the JR Takarazuka 1995. Jan 2000. Nov Line) in which a rapid service train 1991. Oct The Great Hanshin-Awaji (Kobe) Start of "e5489" service for making train derailed and crashed into an apartment, Purchase of the Sanyo Shinkansen Earthquake ticket reservations via the Internet taking the lives of 106 passengers and facilities from Shinkansen Holding injuring over 500 more Corporation 1996. Oct 2003. Sep May Stocks listed on Osaka, Tokyo, and Opening of Shanghai Representative Submission of Safety Improvement Plan 1993. Mar Nagoya securities and stock exchanges Office in Shanghai, China to Minister of Land, Infrastructure and Debut of “” on the Sanyo Transport Shinkansen Line Nov 1997. Mar Start of "ICOCA" IC card service Opening of the JR Tozai Line

4 WEST JAPAN RAILWAY COMPANY Total Assets Railway Revenues (As of March 31, 2018) (Year ended March 31, 2018) Total Total ¥3,072.9billion ¥867.8billion

T O S 63.7% 51.6%

R A O A 3.3% 35.6% R E O C L 19.8% 12.8%

O 13.2%

Non-Transportation Operations

Retail Business Real Estate Business Other Businesses JR-West’s retail services, centered on railway JR-West’s real estate business consists of the JR-West’s other businesses consist of a travel passengers, consist of convenience stores, management of shopping centers in station agency business, a hotel business, as well as specialty stores, and food and beverage out- buildings and other facilities, the operation of an advertising agency business, maintenance lets located in and around station buildings, large station buildings at hub railway stations, the and engineering services, and other busi- as well as department stores such as JR development of commercial facilities near railway nesses to facilitate the smooth and efficient Kyoto Isetan department store. In addition, station areas and underneath elevated tracks, operation of the mainstay railway business. under the Via-Inn brand we are developing an and real estate sales and leasing operations for accommodation-oriented budget hotel chain residential and urban development focused on in our own operating region, as well as in the railway lines. Also, in February 2017 we acquired Tokyo metropolitan area. shares in Ryoju Properties Co., Ltd., converting the company to a consolidated subsidiary.

Oct 2007. Jul through service trains on the Sanyo and Jul lines Introduction of "ICOCA" electronic Introduction of new model Series “N700” Opening of Office money service to “Nozomi” Super Express on Tokaido May and Sanyo Shinkansen lines Grand opening of Osaka Station City 2016. Apr 2006. Apr Opening of Kyoto Establishment of "JR-West Corporate 2008. Mar 2013. Mar Philosophy" and "Safety Charter" Opening of the Osaka Higashi Line Medium-Term Management Plan 2017 and between Hanaten and Kyuhoji stations Safety Think-and-Act Plan 2017 announced 2017. Sep Jul Start of Smart-EX service Application of Shinkansen reservation service "Express Reservations" 2011. Mar 2015. Mar expanding to the entire Tokaido and Update of online train reservation service Opening of the Hokuriku Shinkansen 2018. Apr Sanyo Shinkansen lines "e5489" Line between Nagano and Kanazawa Medium-Term Management Plan 2022 stations announced Debut of "" and "" direct

Annual Report 2018 5 Introduction Financial Highlights

Operating Revenues / Operating Income Total Assets / Equity Ratio

Operating revenues Operating income Total assets Equity ratio

4.1 % increase 8.5 % increase 2.2% increase 1.9 point increase

(Billions of yen) (Billions of yen)

1,451.3 1,441.4 1,500.4 1,500 1,350.3 3,000 1,331.0 2,613.7 33.2% 191.3 3,072.9 1,200 2,400 3,007.8 2,786.4 2,843.1 181.5 176.3 2,687.8

900 1,800 31.3% 28.5% 30.9%

600 1,200 139.7 29.2% 28.8% 134.5

300 600

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018 Years ended March 31 Years ended March 31

Cash Flows Capital Expenditures*1 / Depreciation and Amortization Net cash provided by operating activities Free cash flows Capital expenditures Depreciation and amortization

17.5 % increase 276.5 % increase 11.9 % decrease 0.5 % increase

(Billions of yen) (Billions of yen)

275.1 300 259.8 300 238.0 237.7 223.6 234.1 233.1 240 240 225.6 192.4 152.9 166.7 169.4 180 180 160.8 162.7 163.5 153.9 149.5 156.6 120 72.3 108.7 120

10.7 26.6 60 60

(61.6) 0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018 Years ended March 31 Years ended March 31

*1 Excluding contributions received for construction *2 EBITDA = Operating income + Depreciation + Amortization *3 The Company conducted a stock split on July 1, 2011, at a ratio of 100 ordinary shares for each ordinary share. Figures have been recalculated based on the number of shares after the stock split. Rate of total distribution on net assets = (Total dividends + Acquisitions of treasury stock) / Consolidated net assets *4 In the medium-term management plan, the Company aims to attain an approximately 3% “rate of total distribution on net assets” on a consolidated basis for fiscal 2018. The rate in fiscal 2018 was 3.2%. Rate of total distribution on net assets = (Total dividends + Acquisitions of treasury stock) / Consolidated net assets

6 WEST JAPAN RAILWAY COMPANY EBITDA*2 Profit Attributable to Owners of Parent (per share)

5.0 % increase 21.0 % increase

(Billions of yen) (Yen)

500 500 570.72

471.52 400 356.1 400 443.53 338.1 339.1 310.87 290.3 288.5 289.3 338.98 344.58 300 300

200 200

100 100

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018 Years ended March 31 Years ended March 31

Cash Dividends per Share*3 / DOE*4 ROA (Operating income basis) / ROE

Cash dividends per share DOE ROA ROE

14.3 % increase 0.2 point increase 0.3 point increase 1.3 point increase

(Yen) (%) 160 150 10 11.3 140 135 10.2 10.0 125 120 115 8 8.6 8.4

90 3.1% 3.1% 3.2% 6 6.4 6.3 2.9% 3.0% 6.0 5.1 5.1

60 4

30 2

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018 Years ended March 31 Years ended March 31

Annual Report 2018 7 Business Strategy and Operating Results The President’s Message

In April 2017, the JR-West Group marked the 30th year since its establishment, and in April 2018, we formulated the JR-West Group Medium-Term Management Plan 2022. This plan has renewed our determination to target growth over the next 30 years through the continual progress of the entire JR-West Group and to open up the future. We will promote the JR-West Group Medium-Term Management Plan 2022 in order to realize our corporate philosophy and management vision, which are the heart of the Company.

Tatsuo Kijima President, Representative Director, and Executive Officer

8 WEST JAPAN RAILWAY COMPANY Review of JR-West Group Medium-Term Management Plan 2017

The Company formulated the JR-West Group Medium-Term Management Plan 2017 and the Safety Think-and-Act Plan 2017 in March 2013. In accordance with these plans, JR-West has worked to fulfill its vision of contributing to “the creation of a safe, comfortable society” as a corporate group that provides social infrastructure, centered on railway services. To that end, JR-West has identified two ideal forms — “We will become a company that coexists with local communities” and “We will fulfill Our Mission” — and worked to realize them.

Safety In safety, following the Fuchiyama Line accident, the Group implemented a range of mea- sures to increase safety, including both tangible and intangible initiatives. As a result, the number of railway operation accidents and transportation disruptions due to internal factors has generally been following a declining trend. On the other hand, we did not meet our objectives in such areas as railway labor acci- dents. In addition, we caused a critical incident on the Shinkansen in December 2017. We view these as serious issues, and we are moving ahead rapidly with measures to enhance the level of safety management overall on the Shinkansen. Specifically, we are implementing tangible measures, such as installing systems to detect abnormalities in bogies. Moreover, in regard to governance, in January 2018 we newly appointed a Representative Director who is in charge of Shinkansen operations. Furthermore, in June 2018 we also established a Shink- ansen-specific organizational unit, allowing for prompt decision making.

Business Operations In business operations, we implemented various initiatives on a Groupwide basis, and we were able to achieve steady results. In railway operations, we worked to increase the competitiveness of the Sanyo Shinkan- sen, maximize the Hokuriku Shinkansen opening effect, increase the value of railway belts in the Kansai Urban Area, and implement other initiatives. In these ways, we realized an increase in our earning power. In non-railway businesses, we were able to expand our operations while drawing on external capabilities, such as our alliance with Seven-Eleven Japan and the acquisition of the shares of Ryoju Properties Co., Ltd. (JR West Properties Co., Ltd. from July 2018) Moreover, together with local communities, we took steps to invigorate the western Japan area, such as developing wide-area tourism routes, capturing inbound visitor demand by improving reception systems, and starting operation of MIZUKAZE. As a result, for each of the KPIs related to financial indicators, we surpassed the objective by a significant margin.

Annual Report 2018 9 Business Strategy and Operating Results The President’s Message

Initiatives Under the JR-West Group Medium-Term Management Plan 2022

Looking ahead, we will face changes in the social structure, such as market contraction and labor shortages resulting from the decline in the population. I have to say that the JR-West Group’s operating environment is extremely challenging. In this setting, we announced that under the JR-West Group Medium-Term Management Plan 2022, which was formulated in April 2018, we would contribute to the creation of a safe, comfortable society filled with meetings among people and smiles, and work to achieve long-term growth in corporate value. Specifically, as a numerical objective for our vision, we decided to aim for consolidated operating revenues of ¥2 trillion by around 2030, and we added a backcasting perspective. On that basis, we formulated the Medium-Term Management Plan 2022. We will work to “fulfill our mission as a railway company that coexists with local commu- nities” in order to realize our ideal vision for the future. In addition, we will strive to increase the corporate value that we create and to make progress toward dramatic growth by becom- ing a “company that continues to take on challenges.” In consideration of the above, we will advance the following specific initiatives.

Safety In safety, in March 2018 we formulated the JR-West Group Railway Safety Think-and-Act Plan 2022. In accordance with our unchanging determination to “ensure that we will never again cause an accident such as that on the Fukuchiyama Line,” we returned to the starting point and decided to focus on the pursuit of safety. In particular, in regard to tangible measures, we will steadily move forward with our plans, centered on pursuing Shinkansen safety, strengthening disaster prevention / disaster dam- age reduction measures in response to intensifying natural disasters, and increasing safety on the platform, which is an urgent issue. In addition, with a focus on the future, we will make active use of advancing technologies. In these ways, we will work to further increase safety.

Business Operations In business operations, we announced that “increasing regional value,” “increasing the value of railway belts,” and “increasing business value” were our three Groupwide strategies. Together with people in local communities, we will advance initiatives that combine our rail- way business and non-railway businesses. Specifically, we will work to maximize the effect of the opening of the Kanazawa-Tsuruga segment of the Hokuriku Shinkansen; develop large-scale strategic stations, such as Osaka, Sannomiya, and Hiroshima; capture inbound tourism demand; and implement other measures. In these ways, we will aim to expand the resident and visitor populations. In addition, as initiatives to enhance business sustainability, we will take steps to respond to labor shortages by increasing productivity, and will update aged, large-scale facilities. We will reinforce our foundation in order to ensure that our businesses continue into the future and that we realize growth over the medium to long term.

10 WEST JAPAN RAILWAY COMPANY Toward Sustainable Growth of the Group

We are committed to CSR both as an invaluable part of our management foundation ensur- ing long-term growth and for fulfilling our responsibilities as a member of society. For the JR-West Group, CSR is a means to realize our corporate philosophy, the heart of our Com- pany management, and therefore to fulfill the expectations of our stakeholders by achieving sustainable growth into the future with a central focus on railway business based on safety and security. In that light, we have set priority areas for CSR both in terms of expectations of society and our goals for the future. Specifically, these are safety, customer satisfaction, coexistence with communities, human resources / motivation, the global environment, and corporate governance. With the entire Group working together in these domains, we will create beneficial value for society, and contribute to sustainable growth for the Group.

Finally, as we move forward we will implement initiatives to enhance safety and increase cor- porate value from a medium to long term perspective. In addition, in our relationships with shareholders, we will endeavor to provide stable shareholder returns over the long term, implement appropriate information disclosure, and engage in constructive dialog. I would like to ask our shareholders and other investors for their continued understanding and support of the JR-West Group.

September 2018

Tatsuo Kijima President, Representative Director, and Executive Officer

Annual Report 2018 11 Business Strategy and Operating Results Review of the Medium-Term Management Plan 2017

• In regard to safety, as a result of our efforts to increase safety, even though we did not meet a portion of our objec- tives, the number of railway operation accidents, etc., has generally been following a declining trend. On the other hand, we caused the critical incident on the Shinkansen in December 2017. We view this as a serious issue, and we have already begun to implement countermeasures. • As for the initiatives for each business, targeting the enhancement of corporate value over the medium to long term, we steadily implemented initiatives in all of our business fields. • As a result of these initiatives, we were able to achieve results that exceeded objectives for all financial indicators.

Financial Indicators Billions of yen Fiscal 2013 results Fiscal 2018 objectives* Fiscal 2018 results Operating Revenues 1,298.9 1,423.0 1,500.4 Transportation 844.9 902.5 950.8 Retail 234.6 246.5 239.8 Real estate 90.9 106.0 139.6 Other businesses 128.4 168.0 170.0 Operating Income 129.4 157.0 191.3 Transportation 90.1 105.0 130.3 Retail (0.4) 6.0 7.2 Real estate 28.0 33.5 35.7 Other businesses 12.3 14.0 19.9 Recurring Profit 104.6 141.0 177.7 Profit attributable to owners of parent 60.1 91.5 110.4

EBITDA 290.3 325.5 356.1 ROA (%) 4.9 5.5 6.3 ROE (%) 8.3 9.8 11.3 Rate of total distribution on net assets (%) 2.9 Approx. 3 3.2 Transportation Revenues 769.1 820.5 867.8

* Figures are as of April 2015 when the Medium-Term Management Plan 2017 was updated.

Trends in ROA by Segment (Fiscal 2013-Fiscal 2018) * Circle size indicates operating income

ROA Retail Real estate 7.3% 7.1% 6% Transportation 5.8% 6.4%

Other businesses 4.8% 4.2% 4.7% 3%

Invested capital (total assets)

¥100 billion ¥300 billion ¥600 billion ¥2,000 billion (0.4%)

12 WEST JAPAN RAILWAY COMPANY Safety Think-and-Act Plan 2017 Objectives

Fiscal 2013 results Fiscal 2018 objectives Fiscal 2018 results* Railway accidents that result in casualties among 0 cases 0 cases 0 cases our customers in 5 years in 5 years Railway labor accidents that result in fatalities 0 cases 2 cases 0 cases among our employees in 5 years in 5 years 9 cases Railway accidents with casualties on platforms 13 cases 17 cases (30% reduction) 25 cases Accidents at level crossings 41 cases 25 cases (40% reduction) 140 cases Transportation disruptions due to internal factors 281 cases 152 cases (50% reduction)

* Preliminary figures

(Cases) (Cases) 321 Transportation disruptions due to internal factors 100 281 65 80

60 200 41 152 150 Accidents at level crossing (right) 25 40 100

13 17 20 50 Railway accidents with casualties on platforms (right)

0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Y 0 P * Figures in parentheses are indexed to FY05.3 = 100.

Individual Business Initiatives in the Medium-Term Management Plan 2017

Fiscal 2014 Fiscal 2015 Fiscal 2016 Fiscal 2017 Fiscal 2018

Railway Business Introducing N700A One train Four trains Four trains Three trains Sanyo Shinkansen Complete renewal of ATC system Starting to use new ATC Start of “Smart EX” Preparing for opening Preparing for extension Opening of Joetsumyoko- Hokuriku Shinkansen Kanazawa segment Opening new stations Maya and JR Sojiji and Kansai Urban Area Higashi-Himeji stations Kizurikamikita stations Starting construction (Umekita (Osaka) underground station, etc.)

Sharing issues and discussing with the local community Providing notification of Other conventional lines cessation of service on the Starting operation of Sanko Line TWILIGHT EXPRESS MIZUKAZE Non-Railway Business Continuing to open new stores Converting stores to Seven-Eleven Japan allied stores

Retail Accommodation-oriented hotels Asakusa, Shinsaibashi, Nagoya Hiroshima Tennoji, Opening LUCUA 1100 Real estate Acquiring shares in Ryoju Properties Transferring the golf Investing in urban passenger Alliance with Nippon Signal Other businesses business railway business in Brazil

Annual Report 2018 13 Business Strategy and Operating Results Review of the Medium-Term Management Plan 2017

Fiscal 2018 Results for the Transportation Operations Segment (Year ended March 31, 2018)

Operating Revenues Total Shinkansen

¥ 950.8billion ¥ 447.7billion (Billions of yen) (Billions of yen)

1,000 928.7 929.1 950.8 500 447.7 851.3 868.4 437.2 434.6 375.9 800 357.0 400 364.4

600 300

400 200

200 100

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018

Operating Income Kansai Urban Area Total

¥ 309.0 billion ¥ 130.3billion (Billions of yen) (Billions of yen)

500 150 130.3 125.1 121.7 400 120 100.6 292.1 296.2 302.2 305.0 309.0 91.0 300 90

200 60

100 30

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018

14 WEST JAPAN RAILWAY COMPANY Customer satisfaction (CS) was one of the basic strate- In addition to these measures, amid the moderate gies of the previous medium-term management plan. economic expansion, the Transportation Operations seg- JR-West pursued measures to meet the diverse needs ment benefitted from such factors as active use during of customers, while working to capture and create busi- holidays and other busy periods, and a rebound in railway ness and tourism demand. use from the downturn following the Kumamoto earth- During the subject fiscal year, along with various quake in April 2016. Segment operating revenues rose measures to increase customer satisfaction, JR-West 2.3% from the previous fiscal year to ¥950.8 billion, with worked to raise transport service quality on the Shinkan- operating income up 7.0% to ¥130.3 billion. sen, enhance the value of the railway belts in the Kansai Of note, regarding the Sanko Line service between Urban Area, and promote region-affiliated tourism in the Gotsu and Miyoshi, which ceased operations on April 1, West Japan Area. We also took steps to ensure readi- 2018, JR-West is continuing discussions with local resi- ness to welcome overseas visitors to Japan, and dents regarding the “New Public Transportation Net- enhance the appeal of the “Otonabi” member organiza- work to Replace the Sanko Line”, a community-led tion for seniors (see table below). initiative to establish a model case for public transporta- In bus and ferry (the Miyajima Line) services, with a basis tion, taking into account the needs of the region and a in safe transportation, JR-West worked to enhance conve- future vision for community development. nience through such measures as implementing transpor- tation improvements based on customer usage patterns.

Main Specific Measures during the Subject Fiscal Year

• Improved customer facilities (toilets, benches, waiting rooms, train car renovations, information provision facilities, etc.) Enhancing customer • Expanded guidance service for customers (Enhanced functionality and expanded use of tablets by station 1 satisfaction staff) (June 2017) • Trial of chat-based response system for lost article inquiries (August 2017) • Expanded coverage areas and lines for the train location information service (March 2018) • Conducted the “Beauty of Japan Is in Hokuriku” campaign and other travel campaigns (April-November 2017) 2 Shinkansen • Launched the “e5489” settlement service at convenience stores and other locations (May 2017) • Launch of the “Smart EX” service (September 2017) • Introduction of new 323-model train cars on the Osaka Loop Line • Conducted the grand opening first anniversary campaign (March-May 2017) 3 Kansai Urban Area • Launch of station renovation work (Kyobashi and Tamatsukuri stations (Both in September 2017)) • Opened new stations on the JR Kyoto Line and Osaka Higashi Line (JR Sojiji and Kizuri-Kamikita stations, respectively, both in March 2018) • Began operations of the Twilight Express Mizukaze sleeper train (June 2017) • Launch of the “JR-West 30th Anniversary Open-type Ticket” (September 2017) 4 West Japan Area • Introduction of the newly built passenger cars for steam locomotive Yamaguchi-go (September 2017) • Conducted the Bakumatsu Ishin Yamaguchi destination campaign (September-December 2017) • Conducted the “Kagoshima-e, Don! to Campaign” (January-March 2018) • Launched “Smart EX” service for overseas visitors to Japan (October 2017) • Renovation of the Hiroshima Station Information Center (October 2017) Capturing demand from 5 • Introduced a system for major railway belts in the Kansai Urban Area (March 2018) overseas visitors • Introduced a short-term baggage storage service at Shin-Kobe Station (March 2018) • Expanded multilingual guidance and announcements in stations and trains Generating demand • Conducted events for “Otonabi” members to mark achieving one million members (“Kyoto Railway 6 among seniors Museum” exclusive event (August 2017), etc.)

Annual Report 2018 15 Business Strategy and Operating Results Review of the Medium-Term Management Plan 2017

Fiscal 2018 Results for the Non-Transportation Operations Segment (Year ended March 31, 2018)

Operating Revenues Total Retail Business

¥ 549.5billion ¥ 239.8billion (Billions of yen) (Billions of yen) 522.5 549.5 481.8 512.3 600 479.6 234.6 300 240.1 220.1 232.0 233.9 239.8

400 200

200 100

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018

Real Estate Business Other Businesses

¥ 139.6billion ¥ 170.0billion (Billions of yen) (Billions of yen) 139.6 150 300 102.2 108.8 109.5 87.2 174.4 181.5 168.8 170.0 100 128.4 200 137.1

50 100

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018

Operating Income Total Retail Business

¥ 63.0billion ¥ 7.2billion (Billions of yen) (Billions of yen) 90 9 7.2 60.4 57.9 63.0 5.3 5.2 60 44.0 42.4 6 4.4

30 3 1.5

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018

Real Estate Business Other Businesses

¥ 35.7billion ¥ 19.9billion (Billions of yen) (Billions of yen) 30 60 22.4 20.4 19.9 35.7 40 32.7 32.2 20 15.6 27.7 25.1 11.8

20 10

0 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018

16 WEST JAPAN RAILWAY COMPANY Retail Business For Retail Business measures during the previous medi- also opening stores in areas other than stations and rail- um-term management plan period, JR-West mostly way belts, and in July 2017 opened a Karafuneya CAFÉ completed ahead of schedule its plan to convert the at Abeno Q’s Mall in Osaka. previous Heart-in convenience stores and other shops Further, for the accommodation-oriented hotels included to tie-up stores with Seven Eleven Japan (SEJ). We also in the Retail Business segment, JR-West opened Via-inn moved forward with such measures as proactive Abeno Tennoji in Osaka in April 2017 and Via-inn Umeda expanded location opening of accommodation-oriented in Osaka in August 2017. Via-inn hotels. As a result, sales of goods and food services rose During the subject fiscal year, JR-West converted steadily at SEJ franchise stores, leading to gains in the and opened 30 SEJ tie-up stores, and in June 2017, Retail Business. Segment revenue rose 2.5% from the opened an Entrée Marché at Hiroshima Station, where previous fiscal year to ¥239.8 billion, with operating we had been undertaking station improvements and income up 38.9% to ¥7.2 billion. developing in-station stores and other facilities. We are

Real Estate Business For Real Estate Business measures during the previous opened the renovated B1 floor of LUCUA 1100, and in medium-term management plan period, in recognition December 2017 expanded the Barchica restaurant zone that the real estate business has a high degree of affinity on the B2 floor. At Hiroshima Station, in October 2017 with the railway business in terms of utilizing the portfolio we opened the new “ekie” shopping center, and in assets of the corporate group to improve customer con- March 2018 the “ekie Dining” restaurant zone in the venience and enhance the value of railway belts, north exit 1F area. Further, in March 2018 JR-West JR-West has pursued such businesses as the develop- made regular brush-ups to facilities, including renova- ment and management of shopping centers, as well as tions to Kyoto Porta, Umeda EST in Osaka, Tennoji MIO sales of residential and other properties. in Osaka, and Piole Himeji in Hyogo. During the subject fiscal year, for properties held by As a result, the Real Estate Business segment was JR-West’s consolidated subsidiary Ryoju Properties boosted by such factors as the consolidation of Ryoju Co., Ltd., which conducts business operations in prom- Properties Co., Ltd., and steady growth in the property ising markets including those outside JR-West’s railway development business, including JR West Real Estate belts or railway service area, we worked to expand the and Development Company. Segment revenues rose sales business and strengthen the leasing business, uti- 27.5% from the previous fiscal year to ¥139.6 billion, lizing the know-how of the corporate group. with operating income up 11.1% to ¥35.7 billion. For LUCUA osaka, in September 2017 JR-West fully

Other Businesses For Hotel Business measures during the previous medi- Together with its existing Granvia brand of city hotels and um-term management plan period, to meet firm accom- Via-inn brand of accommodation-oriented hotels, JR-West modation demand and respond to the diverse needs of is expanding its hotel businesses by utilizing a diverse customers, JR-West strengthened operational capabili- brand structure, including in areas outside of its railway ties, including structures and facilities to accommodate belts and railway service area. overseas visitors to Japan, and worked to develop new As a result, operating revenues for the Other busi- business styles. ness segment rose 0.7% from the previous fiscal year to During the subject fiscal year, in October 2017 JR-West ¥170.0 billion, though operating income declined 2.5% opened the high-end capsule hotel First Cabin Station to ¥19.9 billion. This was due mainly to the impact in the Abenoso in Abeno Osaka, and is making preparation for hotel business from the closure of the Sannomiya Termi- opening the high-class accommodation-oriented Hotel nal Hotel in Kobe, offsetting gains in the construction Vischio in Osaka and in Kyoto. In addition, JR-West plans business from increases in orders, and in the travel to develop new types of hotels, such as for customers agency business from increased use by overseas visi- enjoying personal leisure in the Kyoto-Umekoji area. tors to Japan.

Annual Report 2018 17 Business Strategy and Operating Results Medium-Term Management Plan 2022

Corporate Philosophy / Management Vision

Steadfastly maintaining the direction taken to date. At the • Strengthening Shinkansen competitiveness same time, adding a backcasting • Increasing the value of railway belts in the (¥ Billion) Kansai Urban Area perspective to target sustained 2,000.0 • Increasing asset efficiency and expanding growth over the long term. operational scale in non-railway businesses

Trends in consolidated operating revenues

1,500.0

Medium-Term Management Plan 2022 Preparations for further growth Securing business sustainability

1,000.0 ¥1.6 trillion (ROA: in mid-6% range) Medium-Term Management Plan 2017 Groupwide strategies

Increasing Increasing Increasing the value regional value business value of railway belts ¥1.5 trillion (ROA: 6.3%) Railway Business Non-Railway Business

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

• Opening of northern section of Osaka Higashi Line • Introduction of N700A • Standardizing of rolling stock for trains used in direct • Opening of Joetsumyoko-Kanazawa segment operation between the Tokaido Shinkansen and the of the Hokuriku Shinkansen Sanyo Shinkansen

Enhancing safety

18 WEST JAPAN RAILWAY COMPANY Corporate Philosophy / Management Vision

Our Vision Safe and comfortable society filled with meet- • Setting objectives from long-term viewpoint ings among people and smiles • Maximizing effectiveness of large-scale projects Our Ideal Forms • We will fulfill our mission as a railway com- pany that coexists with local communities. • We will become a company that continues to take on challenges. Continuation of current trends

Securing business sustainability • Increasing productivity by utilizing new ¥ trillion technologies, etc. Around 2 • Using opportunities presented by updates of large-scale facilities in order 2030 strengthen functionality

• We will steadfastly maintain the direction that we have followed to date, which has enabled us to generate significant results. That is to say, we will implement initiatives with the highest priority on safety, which is the foundation of our management and the base for increasing corporate value. In addition, we will take steps to enhance Shinkansen competitiveness, increase the value of railway belts and increase asset efficiency/business scale in non-railway operations. In these ways, we will work to achieve stable growth. • On the other hand, looking at the internal and external environments, there are negative factors such as population decline. None- theless, there are many growth opportunities in the western Japan area, such as growth in inbound demand, the Hokuriku Shink- ansen Shin-Osaka extension. Accordingly, we decided to leverage these opportunities and work to achieve long-term growth in corporate value, and we added a backcasting perspective. On that basis, we formulated the new medium-term management plan. • We will observe our Corporate Philosophy and Management Vision, which are the foundation of our management. On that basis, targeting the realization of Our Vision, we established Our Ideal Forms. With a commitment to the western Japan area, we will work to expand the visitor and resident populations and to achieve dramatic growth. To that end, we formulated three Groupwide strate- gies — increasing regional value, increasing the value of railway belts, and increasing business value. Railway operations and non-railway businesses will continue to work together as we move forward.

2024- FY

• Opening of Kanazawa-Tsuruga segment of Hokuriku Shinkansen • Opening of Umekita (Osaka) underground station • Consideration of access to Yumeshima • Development of Shin-Osaka wide-area hub base • Opening of

Enhancing safety

Annual Report 2018 19 Business Strategy and Operating Results Medium-Term Management Plan 2022

Groupwide Strategies We will work together with local communities to build cities and areas Increasing Regional Value along railway lines that everyone wants 1 to visit and everyone wants to live in. The JR-West Group recognizes that the activation of the regional businesses, thereby expanding the visitor pop- western Japan area will lead to sustained growth for the ulation as well as the resident population in areas along Group over the long term. Accordingly, in cooperation railway lines. Furthermore, together with local communi- with local communities, we will implement activities that ties we will aim to realize safe, sustainable railway/trans- leverage wide-area railway networks; safe, high-quality portation services. In addition to the Setouchi Area and transportation services; and the diverse resources of the the Hokuriku Area, we will also implement initiatives tar- JR-West Group. Through these initiatives, we will geting increases in regional value in the Area, develop major tourism areas and create and nurture Northern Kinki Area, Sanin Area, Kyushu Area, etc.

TOPICS SETOUCHI AREA Developing a major tourism area that people want to visit repeatedly

Developing wide-area tourism routes Developing content that has the ability as a foundation to draw customers

N

Enhancing stations, which Drawing on the appeal of Developing appealing Building tourism routes will be tourism connection distinctive regional food accommodation facilities that combine railways and points (Shinkansen sta- and souvenirs to develop (community-oriented cruise ships, developing tions that are near arrival strategic stations casual hotels, restoration of new cruise routes and departure ports for (Okayama, Onomichi, traditional Japanese cruise ships) Hiroshima, etc.) houses, hotels for cyclists)

Developing commercial Operating sightseeing Increasing the convenience products that feature trains and new Establishing and publicizing and appeal of the Sanyo regional appeal and open- long-distance trains that content combining new Shinkansen (operating the ing sales routes (aquacul- link strategic Shinkansen perspectives on regional Hello Kitty Shinkansen ture business for oysters, stations and events and attractions T (), etc.) etc.; Internet sales for tourist destinations overseas customers)

Osakikamijima (oyster cultivation) TWILIGHT EXPRESS N MIZUKAZE 1 Base development O 7 Hotels for cyclists S Base development O 6 SO 4

O N 5 Hello Kitty Shinkansen 3 2 Oyster cultivation Cruise Ship Hiroshima (base development) 20 WEST JAPAN RAILWAY COMPANY

TOPICS CAPTURING INBOUND DEMAND Fully leveraging the appeal of the western Japan area and aiming for growth that outpaces the growth of inbound visitors to Japan

Major initiatives

Developing and improving wide-area tourism routes Capturing demand on a Groupwide basis

• Uncovering tourist attractions in the western Japan area • Expanding development of accommodation facilities • Promoting sales of optional tours • Renovating hotels and commercial facilities

Improving reception systems Strengthening promotions

• Installing free Wi-Fi SETOUCHI AREA • Collaborating with communities, municipal governments, • Strengthening functions related to meeting the needs of and DMOs inbound visitors at major stations • Strengthening promotions in Southeast Asia, Europe, the • Enhancing environment for Internet reservations from U.S., and Australia overseas

Objectives

Consolidated operating revenues Transportation revenues Number of users of exclusive products (Billions of yen) (Billions of yen) (10,000 tickets)

N 80.0 50.0 45.6 300 260 65.0 40.0 40.0 60.0 +22.0 +17.1 +100 200 28.4 42.9 30.0 30.0 160 40.0

20.0 100 20.0 4 10.0

T 0 18 23 FY 0 18 23 FY 0 18 23 FY (Objective) (Objective) (Objective)

N 1

O 7 S O 6 SO 4

O N 5 3 2

“Travel Service Center Osaka” in Osaka Station

Annual Report 2018 21

Business Strategy and Operating Results Medium-Term Management Plan 2022

Groupwide Strategies We will contribute to the realization of convenient, comfortable lifestyles by Increasing the Value of Railway Belts providing safe, high-quality railway 2 services and lifestyle services. The JR-West Group will take steps to enhance its railway railways and residents in areas along railway lines. We will networks, including establishing new lines and new sta- encourage people to reside in areas along our railway lines tions, and to implement city development initiatives. At and to choose lifestyles that include the use of railways. the same time, we will work to make stations more-ap- In the Okayama Area, the Hiroshima Area, and a variety pealing spaces and implement other initiatives. In these of other areas, we will implement initiatives to increase ways, we will aim to provide high-quality lifestyle services the value of railway belts. and products that meet the needs of customers who use

TOPICS KANSAI METROPOLITAN AREA We will create areas along railway lines that people want to reside in and visit in order to establish the Kansai metropolitan area brand.

Three visions to enhance appeal

Increasing “railway quality” (enhancing transportation services) We will provide safe, high-quality railway services that customers choose repeatedly. Creating highly-functional stations that are suitable to be community gateways (stations and station building developments) We will build lively, dynamic stations that help make daily lives more comfortable through renovations that optimize station service functions.

Creating city spaces that are convenient and easy to Kyoto New station on Spring 2019 live in (development of areas surrounding stations) Kyoto-Tanbaguchi Opening a new station on the Kyoto-Tanbaguchi segment segment of the Sagano Line Base development Opening two hotels in front of the Hachijo Exit We will work in collaboration with municipal governments and of Kyoto Station (Vischio, Via-inn) Shimamoto companies to enhance such functions as commerce, hous- Condominium 2020 development Umekoji: Opening community-oriented casual hotels ing, culture, healthcare, child-rearing, etc., and to create Kishibe Development of areas surrounding stations 2018 – 2020 appealing city spaces where many people gather and Kyoto Station commercial facility Large-scale renovation (in-station / department store) reside. Suita Development of areas surrounding stations Ibaraki Development of areas Osaka Akashi Kobe Maya Ashiya Shin-Osaka surrounding stations Condominium Condominium Development of areas Station improvement / In-station development development surrounding stations in-station development development June 2018 Opening of Hotel Vischio Osaka Spring 2019 Opening of northern section of Osaka Higashi Line Tsukamoto Kyobashi Spring 2023 Condominium Station improvement / development in-station development Opening of Umekita (Osaka) underground station Fukushima Development of areas Tennoji surrounding stations In-station 2023 and thereafter Sannomiya development Developing the western part of Osaka Station Spring 2031 objective 2023 and thereafter: Opening of Naniwasuji Line Station building development

22 WEST JAPAN RAILWAY COMPANY Groupwide Strategies We will increase the quality of Increasing Business Value the products and services provided by 3 the JR-West Group. We will strive to ensure that each employee works with By advancing into new markets, implementing initia- pride and a sense of mission as we take steps to enhance tives in new business fields, leveraging new technolo- our technologies, expertise, and capabilities and to rein- gies, etc., the JR-West Group will take on the challenges force our teamwork. In these ways, we will continue to of creating new value, achieving dramatic growth, and take on the challenges of reinforcing our current business providing products and services that are chosen by strengths and increasing our business value. customers.

KANSAI METROPOLITAN AREA Advancing into New Markets, Enhancing Existing Businesses Implementing Initiatives in New Business Fields

• In railway operations, our core business, we will pro- • In businesses in which we can demonstrate our mote effective initiatives from the perspectives of accumulated strengths, we will take on the chal- both tangible and intangible aspects in order to lenge of implementing initiatives outside railway achieve ongoing increases in safety and customer belts, outside our railway service area, and in over- satisfaction. seas markets. In this way, we will further strengthen our competitiveness. • In stations and the areas surrounding stations, we will provide high-quality products and services that • We will take on the challenge of creating new value meet the needs of customers who use railways and and invigorating regions by promoting local indus- residents in railway belts. tries and leveraging regional resources, while cooper- ating with local communities. • We will ensure that Group companies all work together to demonstrate the comprehensive strengths of the JR-West Group.

Creating Value through the Utilization of New Technologies, etc.

• With a focus on the future management environment, we will take steps to realize our ideal forms, which are outlined in the “Technology Vision.”* We will work together with a range of partners, continue daily innovation, address customer needs, and create new value. • In addition, in preparation for future contraction of the workforce, throughout our operations we will reevaluate frameworks with consideration for the use of new technologies and we will introduce new equipment. In this way, we will increase productivity in an overall sense, including that of human resources, technologies, and equipment. With a small number of people and simple equipment, we will create value more effectively.

* Technology Vision: From a technological perspective, our approach to the realization of our ideal forms in approximately 20 years (announced in March 2018).

Annual Report 2018 23 Business Strategy and Operating Results Medium-Term Management Plan 2022 Transportation Operations

Basic Strategy By implementing initiatives in the areas of “enhancing support the initiatives in these three areas, we will work safety,” “increasing customer satisfaction,” and “increasing to provide safe, high-quality railway services, and to productivity,” as well as “implementing reforms through increase business value. human resources development and technology,” which

Enhancing Safety

We have an unchanging determination to ensure • Fostering the spread of safety-first awareness that we will never again cause an accident such as • Enhancing organizational safety management that on the Fukuchiyama Line. This is the duty of the • Implementing safety think-and-act initiatives by each individual JR-West Group, which has railway operations as its core business. We will continue to position safety as • Enhancing railway systems that maintain safety (tangible, intangible) the highest priority strategy, and we will work to build frameworks for securing safety on a Group- wide basis and to establish a corporate culture in Major tangible measures which safety is the highest priority. We will strive to • Pursuing Shinkansen safety successfully implement the “JR-West Group Rail- • Strengthening disaster prevention / disaster damage reduction measures in way Safety Think-and-Act Plan 2022,” and to pre- response to intensifying natural disasters • “Increasing platform safety,” which is an urgent issue vent serious accidents / labor accidents. • Increasing safety through new technologies and mechanization

Slope reinforcement work (left) Movable platform gates (right)

Increasing Customer Satisfaction

Through sustained efforts to meet the expectations • Implementing initiatives related to safe and reliable transportation of our customer base, which are changing and • Providing information at times of transportation disruptions diversifying, we will establish a corporate culture in • Offering appropriate, easy-to-understand guidance services which business activities are always customer ori- ented (= customer-based management) and aim to • Creating comfortable, convenient environments ensure that customers become fans of JR-West. (stations, trains, manners, etc.) • Providing information regarding examples of improvement, plans, etc. (two-way communication)

24 WEST JAPAN RAILWAY COMPANY Increasing Productivity

To continue to provide railway/transportation ser- • Changing maintenance systems: We will position the period of the vices in the years ahead, we will work to effectively new plan as a time for building maintenance systems aimed at offer safe, high-quality railway services through sustaining operation of railway/transportation services, and we will improvements in both tangible and intangible areas. take on the challenge of transitioning to new maintenance methods • Reevaluating services and equipment with consideration for usage, appropriately allocating personnel for “operations that are effectively performed by people”

Utility pole handling vehicles

Aiming to overcome changes in the operating environment and to realize our ideal form “Technology Vision” in approximately 20 years from a technology perspective.

Three ideal forms Major initiatives Pursuing further safety and • Visualization of risk through technology: Reinforcement of slopes using aerial laser measurement 1 reliability of transportation • Advancing safety systems: Introducing wireless ATC • Providing seamless mobility: Implementing ticketless initiatives Providing railway/transportation • One-to-one services: Proposing optimal travel through data marketing 2 services that play a role in support- ➔ Turning the Umekita (Osaka) underground station into a station of the future, centered on open ing the creation of appealing areas innovation initiatives • Increasing productivity: Transition to CBM (transitioning from ground-based inspections to Building sustainable railway/ 3 on-board inspections, condition monitoring on trains used to carry passengers, sensor networks) transportation systems • Simplifying ground equipments: Introducing onboard IC ticket checking equipments

Implementing Reforms through Human Resources Development and Technology We will increase the quality of railway services by enhancing “human resources” and “technologies,” which support railway operations.

Human Resources Technologies • Steadily transmitting technologies and improving technical skills • Pursuing innovation to realize the “Technology Vision” • Establishing environments for securing human resources in a • Expanding areas in which issues are resolved through technology, carefully planed way and promoting active contributions of expanding collaboration outside the Company in order to prog- diverse employees ress more quickly • Utilizing railway operations technologies outside the Company, including overseas

Annual Report 2018 25 Business Strategy and Operating Results Medium-Term Management Plan 2022 Transportation Operations

Railway Business Strategies

Shinkansen

Trends in transportation revenues

(Billions of yen) 500 470.7 454.7 447.7 450

400

357.0

350

300 2013 ... 2018 2019 ... 2023 FY (forecast) (objective)

Kansai Urban Area

Trends in transportation revenues

(Billions of yen) 350 313.6 309.0 312.0

300 288.9

250

200 2013 ... 2018 2019 ... 2023 FY (forecast) (objective)

Other West Japan Area

Trends in transportation revenues

(Billions of yen) 200

150 123.0 111.0 111.1 105.6

100

50 2013 ... 2018 2019 ... 2023 FY (forecast) (objective)

26 WEST JAPAN RAILWAY COMPANY Shinkansen Business strategy We will strive to reinforce high-speed railway safety, enhance strengths centered on wide-area railway networks, and contribute to the expansion of the visitor population.

Major priority initiatives • Rigorous safety management • Increasing the quality of transportation services • Expanding usage by inbound customers, taking steps to foster tourism demand in cooperation with regional communities • Maximizing the effect of the opening of Kanazawa-Tsuruga segment of Hokuriku Shinkansen

Target Indicators / Direction • Situation in which we are conducting risk management in an appropriate manner to maintain a high level of safety and are moving forward with tangible countermeasures and with the revision of rules and frameworks • Increasing the number of Shinkansen passengers by 5% (fiscal 2023 / fiscal 2018)

Kansai Urban Area Business strategy We will increase the value of railway belts through the provision of transportation services that offer peace of mind and reliability, the development of areas along railway lines, etc.

Major priority initiatives • Increasing the quality of transportation services • Increasing the value of railway belts • Expanding usage by inbound customers • Maximizing the effect of the opening of Umekita (Osaka) underground station

Target Indicators / Direction • Number of passengers for JR Kyoto Line / JR Kobe Line / Osaka Loop Line: 2.65 million people/day (+40,000 people/day vs. fiscal 2018) • IC card usage rate: 85%

Other West Japan Area Business strategy Through dialog and collaboration with communities, we will develop businesses aligned with local areas and contribute to the activation of the Other West Japan Area.

Major priority initiatives • Implementing city development efforts, centered on core cities in the Other West Japan Area (developing strategic stations, enhancing express train networks, etc.) • Invigorating communities, centered on tourism (establishing wide-area tourism routes, using sightseeing trains, etc.) • Expanding usage by inbound customers • Realizing safe, sustainable railway/transportation services

Target Indicators / Direction • Moving forward with the expansion of the visitor population, the expansion of the resident population, and the realization of safe, sustainable railway/transportation services

Annual Report 2018 27 Business Strategy and Operating Results Medium-Term Management Plan 2022 Non-Transportation Operations

Basic Strategy We will aim to achieve increases in the value of railway customers who use railways and residents in areas belts and regions and to expand the visitor and resident along railway lines, and we will implement regional busi- populations. Accordingly, we will provide high-quality ness creation, development, etc. products and services that meet the expectations of

Deepening Operations in Major Businesses Increase overall community • Advancing plans for the Big Three Projects value, starting with stations Advancing plans for the large-scale strategic station development initiatives for Osaka, Sannomiya, In areas along railway lines, we will and Hiroshima, which have been positioned as the Big Three Projects in non-railway operations. take steps to advance “city develop- • Implementing city development starting with stations ment starting with stations,” centered Contributing to the development of lively cities by implementing renovations that optimize the on major businesses. We will provide service functions of stations, which are the entrances to local communities, and by participating appealing products and services and in redevelopment projects for areas around stations. increase community value overall. • Enhancing city functions Working in collaboration with municipal governments and companies to implement development in stations and in areas surrounding stations. Enhancing functions, such as culture, healthcare, child-rearing, etc., to foster appealing city spaces where people gather and reside.

Advancing into New Markets Increase brand power in each • Advancing into areas outside of areas along railway lines / railway service areas business Actively advancing into regions outside of areas along railway lines in the Kansai Urban Area, as In businesses in which we can demon- well as growth markets outside of the railway service area (Tokyo metropolitan area, Nagoya strate our strengths, we will boost our metropolitan area, etc.), thereby increasing competitiveness as a chain. competitiveness as a chain by entering • Taking on the challenge of overseas initiatives new markets. In addition, we will build Taking on the challenge of business initiatives in major cities in Southeast Asia, Europe, and the an optimal business portfolio to sup- U.S., where growth is expected, thereby contributing to the enhancement of city functions. port sustained growth.

JR-West Hotel, Shopping Center, and Condominium Locations (As of March 31, 2018)

Shopping Center Hotel

GRACIA city kawasakidaishigawara

KANAZAWA HYAKUBANGAI

piole HIMEJI

ekie (Hiroshima) J.GRAN THE HONOR SHIMOGAMO TADASU NO MORI

28 WEST JAPAN RAILWAY COMPANY Implementing Initiatives in New Business Areas Invigorate communities through • Expanding businesses through community collaboration the creation of new value Expanding businesses such as distinctive local industries, restoration of traditional Japanese We will take on the challenge of creat- houses, etc. ing new value and invigorating regions • Expanding businesses that enhance lifestyle foundations by promoting local industries and Expanding caregiving, temporary staffing and placement services for seniors, etc. leveraging regional resources, while cooperating with local communities • Opening up new businesses and participating directly. Creating businesses that contribute to the resolution of issues faced by regional societies

Strengthening Foundation to Support Growth Making active use of ICT tools and Strengthening foundations for human resources, external know-how organizations, etc. Increasing marketing capability through the use of ICOCA and Developing human resources / organizations in alignment with J-West Card, etc., providing products and services that leverage the businesses, establishing frameworks for the demonstration of the convenience of the Internet. Group’s comprehensive strengths.

Number of Hotels Number of Shopping Centers

Budget Hotels City Hotels Via Inn Higashi Ginza 19 7 44

Number of Department Stores Number of Condominium Units Completed in Fiscal 2018 1 1,180 Number completed to date: 9,570 LUCUA osaka

Annual Report 2018 29 Business Strategy and Operating Results Medium-Term Management Plan 2022 Non-Transportation Operations

Non-Railway Business Strategies

Retail Business [Sales of Goods / Food Services] Business strategy We will strengthen functions as “Lifestyle Stations” and provide support for the enjoyment of daily lives and travel.

Major priority initiatives • Strengthening operating capabilities in directly-operated business formats • Advancing development and renewal of in-station stores • Expanding openings of convenience stores / food service stores, etc., outside stations

Seven-Eleven allied store

Real Estate Business [Real Estate Lease and Sale] Business strategy We will build communities that people want to reside in and visit, and contribute to the development of areas along railway lines and local communities.

Major priority initiatives • Advancing plans for the Big Three Projects (shared by each business) • Advancing city development in areas along railway lines • Expanding initiatives in growth markets outside of areas along railway lines and railway service areas

J.GRAN City Tsukamoto [Shopping Centers] Business strategy We will propose high-quality lifestyles through the provision of tangible and intangible products and services.

Major priority initiatives • Pursuing shopping center operations in line with changes in needs and local conditions • Increasing competitiveness by leveraging new systems / point standardization • Establishing business model for lifestyle-support-oriented shopping centers, implementing Illustration of SUITA GREEN PLACE Phase II initiatives outside stations

Other Businesses [Hotels] Business strategy We will meet the accommodation needs of a diverse range of customers and provide support for comfortable stays.

Major priority initiatives • Expanding openings, centered on accommodation-oriented hotels • Renovating existing hotels and strengthening operating capabilities • Addressing diverse needs through the development / operation of new business formats

Results objectives Hachijo Exit of Kyoto Station (Vischio, Via-inn) FY18.3 results FY23.3 objective Operating Revenues ¥47.3 billion ¥63.2 billion

* Consolidated basis (Retail business: “Via-inn” + Other businesses: Hotel operations)

30 WEST JAPAN RAILWAY COMPANY Retail Business

Trends in Operating Revenues and Operating Income

(Billions of yen) 300 281.0 15 O

239.8 244.8 10.0 250 234.6 10

7.2 5.7 200 5 O (0.4) 150 0

100 2013 ... 2018 2019 ... 2023 FY (5) (forecast) (objective)

Real Estate Business

Trends in Operating Revenues and Operating Income

(Billions of yen) 300 180 O 168.5 60 147.8 139.6 150 250 50

120 41.5 90.9 200 35.7 40 90 33.4 28.0 150 O 30 60

100 30 2013 ... 2018 2019 ... 2023 FY 20 (forecast) (objective)

Other Businesses

Lineup

Results as of end FY March 2018 Objectives for FY23.3 Number of hotels Brand Category Number of Inside railway Outside railway Number of rooms Total rooms service area service area Granvia Other City hotels 7 hotels — 7 hotels 2,460 rooms Approx. 2,300 rooms High-class Vischio Other accommodation-oriented hotels — — — — Approx. 1,400 rooms Via-inn Retail Accommodation-oriented hotels 13 hotels 6 hotels 19 hotels 4,660 rooms Approx. 6,700 rooms Potel Non- Community-oriented casual — — — — Approx. 200 rooms Consolidated hotels First Cabin Non- High-end capsule hotels 1 hotels — 1 hotels 129 rooms Approx. 400 rooms Station Consolidated Total 21 hotels 6 hotels 27 hotels 7,249 rooms 11,000 rooms

Annual Report 2018 31 Business Strategy and Operating Results Medium-Term Management Plan 2022

Financial Indicators Billions of yen Fiscal 2018 results Fiscal 2023 objectives Increase / Decrease Operating Revenues 1,500.4 1630.0 +129.5 Transportation 950.8 977.5 +26.6 Retail 239.8 281.0 +41.1 Real estate 139.6 168.5 +28.8 Other businesses 170.0 203.0 +32.9 Operating Income 191.3 [218.0] 210.0 [+26.6] +18.6 Transportation 130.3 139.5 +9.1 Retail 7.2 10.0 +2.7 Real estate 35.7 41.5 +5.7 Other businesses 19.9 23.0 +3.0 Recurring Profit 177.7 [205.0] 197.0 [+27.2] +19.2 Profit attributable to owners of parent 110.4 [134.0] 128.0 [+23.5] +17.5

EBITDA 356.1 [408.0] 400.0 [+51.8] +43.8 ROA (%) 6.3 Mid-6% range — ROE (%) 11.3 Approx. 10 — Transportation Revenues 867.8 890.0 +22.1

* EBITDA = Operating Income+Depreciation+Amortization of goodwill Figures in [ ] exclude Hokuriku Shinkansen opening preparation expenses

Financial Strategies Clarifying priority ranking for uses of cash. Considering balance between investment and shareholder returns, as well cost of capital.

Increasing cash generating ability

Priority ranking for uses of cash 1. Highest priority on safety/growth investment

Operating cash flow Capital expenditure • Investing in safety, which is the foundation of management • Implementing growth investment to increase corporate value over the long term • Investing to increase business sustainability

2. Shareholder return Returns to • Balancing uses of cash shareholders • Allocating free cash flow to shareholder return

Dividends

Acquisition of treasury stock

3. Basically, we will not implement debt reduction.

Debt reduction • Considering the procurement of new debt for additional investment, while maintaining corporate credit ratings

* Balance of cash and deposits: Generally maintaining current level

32 WEST JAPAN RAILWAY COMPANY Capital Expenditure Strengthening investment in safety, which is the foundation of management, as well as investment in initiatives con- tributing to sustained growth.

¥1,270 billion (Breakdown by segment) * Amount of increase / decrease excludes (+¥150 billion) equity investment [Investment details] ¥1,120 billion Increasing railway competitiveness Equity investment Capex for growth • Additional rolling stock • Expansion of ICOCA area ¥130 billion ¥460 billion • Promoting Internet reservations Transportation operations Expanding Increasing asset Capex for growth ¥940 billion businesses in efficiency (+¥150 billion) which we have • Shopping center/ ¥280 billion strengths department store Capex for Securing business renovations • Real estate lease and maintenance and • Strengthening sale (strategic sustainability operating capabilities upgrades stations, areas for SEJ franchise outside of areas ¥810 billion Enhancing safety stores, etc. Capex for along railway lines, areas outside of maintenance and railway service area) Updating aged upgrades • Hotel business (new equipment openings) ¥710 billion Retail • Renovating depots ¥20 billion (-¥5 billion) Increasing Upfront investment productivity in large-scale Safety capex Real estate • Maintenance system projects ¥530 billion change • Hokuriku Shinkansen ¥260 billion • Revising services/ Tsuruga extension Safety capex (+¥40 billion) (+¥130 billion) facilities • Umekita (Osaka) ¥490 billion underground station • Developing Other Sannomiya, Hiroshima, etc. ¥50 billion (+¥5 billion) ¥100 billion ¥150 billion Medium-Term Medium-Term Management Plan 2022 Capital expenditure from a long-term viewpoint Management Plan 2017

Shareholder Return

Shareholder return policy

◼ We will implement stable dividends, aiming for a dividend payout ratio of approximately 35% in fiscal 2023. ◼ Over the period of this plan, our yardstick will be a total return ratio of approximately 40%, and we will make flexible acquisitions of treasury stock. • With capital expenditures expanding, we will enhance returns to shareholders. We will bolster both profit growth and shareholder return. • We will focus on sustained profit growth and utilize return ratios.

Shareholder return in fiscal 2019

◼ Planning on dividends of ¥175 per share, an increase of ¥15 (9th consecutive year of higher dividends) ◼ Planning to acquire treasury stock, with upper limit of ¥10 billion

Annual Report 2018 33 ESG Section ESG Initiatives

Our Approach to CSR for Sustainable Growth of the Group CSR is an indispensable endeavor for the Company, in highlighted main priority fields for the entire Group to that it provides beneficial value to society in line with our focus their efforts. The CSR priority fields have been corporate philosophy, and is part of our management determined in terms of the ESG priorities put forth in our base for sustainable growth of the Group. In order to Medium-Term Management Plan 2022 and in light of the improve the value that we provide to society, we have expectations of society and our goals for the future.

Beneficial value to society

Realization our corporate philosophy

Support and foster the values of our corporate philosophy

Coexistence with Safety Customer satisfaction communities

Human resources / Human rights Global environment Motivation

Risk management

Governance

Efforts in high-priority fields

Think-and-Act, based on each customer and the field

JR-West Group’s CSR promotion

34 WEST JAPAN RAILWAY COMPANY We established priority fields from the perspective of fulfill our responsibilities as a member of society and to ESG and, with consideration for SDGs, we will take achieve sustained growth. steps to implement initiatives. In this way, we will aim to

Environmental Social

Global environment • Providing information Human resources / • Creating an environ- Safety ment in which retirees regarding examples of Motivation improvement, plans, and their families • Contributing to reduc- etc. (two-way commu- maintain relationships tions in CO2 through a See page 39. nication) • Developing human with the Company and shift to the use of resources who can enjoy comfortable environmentally friendly take the lead in lifestyles railways Coexisting with think-and-act initia- Customer satisfaction • Advancing the estab- communities tives, building lishment of environmen- mutually supportive tally-friendly stations, • Implementing initia- environments, and etc. • Building communities establishing an Human rights tives related to safe that people want to • Further progress in environment in which and reliable transpor- visit and live in railway energy-saving diverse human • Responding to human tation through dialog and and resource conserva- resources can actively rights issues, which • Providing information cooperation with tion contribute (diversity are becoming more at times of transporta- people in local and inclusion) diverse and complex tion disruptions communities • Improving the pride due to changes in the • Offering appropriate, • Realizing safe, and motivation of social environment easy-to-understand sustainable railway/ each employee, • Advancing risk guidance services transportation advancing initiatives management in regard services • Creating comfortable, to promote health in to human rights convenient environ- • Creating new value by mind and body ments (stations, trains, promoting local manners, etc.) industries and leveraging regional resources

Governance

Governance Risk management

• Strengthening governance for the entire JR-West Group • Incorporating risk management initiatives into management system and • Rigorously complying with laws and regulations on a Groupwide basis establishing risk management within the Company and establishing corporate ethics in accordance with the spirit of laws • Recognizing and improving issues with our corporate culture and address- and regulations ing new compliance risks • Establishing and operating a framework that reflects consideration for • Addressing serious hazards and risks in management on a Groupwide the purposes of the Corporate Governance Code basis • Enhancing two-way communication with stakeholders

External recognition

JR-West has been included in two of the ESG indices selected by the Government Pension Investment Fund (GPIF): the FTSE Blossom Japan Index and the MSCI Japan ESG Select Leaders Index.

Annual Report 2018 35 ESG Section ESG Highlight

Global Environment page 43

Environmental Accounting (Fiscal Year Ended March 2018) (Billions of yen) Cost of Cost of Cost of Cost of Research and preserving the Cost of resource Cost of social environmental Category preventing management development global recycling activities protection pollution activities costs environment measures Environmental Investment amounts 0.18 25.48 0.13 0.00 0.00 0.00 0.00 preservation costs Expense amounts 0.47 0.30 5.18 0.10 1.15 0.01 0.21

Environmental Burden (Data for the Fiscal Year Ended March 2018) 3.13 billion kWh Volume of used materials generated (facility construction) 156,600 t Electricity Used to operate trains (electric), etc. [360 million kWh] 26,780 kℓ Recycling volume 150,900 t Diesel fuel Use to operate trains (diesel railcars), etc. [176 kℓ] (96.4%) Used at boilers in maintenance centers, 3,975 kℓ Volume of used materials generated (railcars) 14,000 t Fuel oil etc., and for heating offices [133 kℓ] Type A Used in maintenance centers and other 1,112 kℓ Recycling volume 13,200 t heavy oil boilers [1,301 kℓ] (94.3%) 1,101 tons Total amount of station and train waste 13,400 t Gasoline Used in commercial vehicles, etc. [1,250 tons] INPUT 3 OUTPUT Natural gas Used to heat water at offices, etc. 2,310,000 m Of which, recyclable waste 4,800 t [16,760,000 m3] 421 tons Recycling of recyclable waste 4,700 t Propane gas Used to heat water at offices, etc. [18 tons] (98.6%) 3 4,110,000 m 2 Water Waterworks Carbon dioxide* 1,910,000 t-CO2 [4,110,000 m3] Groundwater, industrial water, recycled 3 Wastewater*3 5,220,000 m3 Water water*1 1,370,000 m A4-sized 160 millions of sheets Industrial waste*4 8.500 t copy paper Used for copying, etc. [200 millions of sheets] [279,000 t]

Figures within [ ] indicate values for consolidated subsidiaries and other Group companies (noted elsewhere). *1 Figures indicated for water indicate only those that can be technically measured, including at Osaka Station and maintenance centers. *2 Carbon dioxide emissions are calculated according to methods stipulated in the Act on the Rational Use of Energy and the Act of Promotion of Global Warming Countermeasures. *3 Figures indicated for wastewater include only those that can be technically measured, including water released into rivers and water released into sewerage. *4 Group company emissions include those generated during subcontracted JR-related construction.

1 Energy Used and CO2 Emitted* in Railway Operation Energy and Energy Adoption of Energy-Saving Rolling Business Operations Consumed per Passenger Car-Kilometer Stock (Commercial Vehicles) Energy used (railcar operation) Energy used (other Energy used (Shinkansen) Energy used (conventional Energy-saving rolling stock Non-energy-saving rolling than railcars) CO2 emissions lines) Energy consumed per passenger car-kilometer stock Ratio of energy-saving rolling stock introduced

(Billion MJ) (Ten thousand ton-CO2) (Billion MJ) (MJ/passenger car-kilometer) (Number of railcars) (%) 200.0 199.2 200.4 6,309 6,245 6,253 6,243 6,187 193.3 6,149 6,142 191.0 1,753 1,422 1,371 1,325 1,146 1,008 908 50 177.6 200 30 27.44 27.21 30 6,000 100 26.75 27.05 26.98 27.20 27.16 85.3 15.68 81.7 83.9 14.91 15.03 14.75 13.88 13.81 13.86 76.9 77.7 78.8 145.7 72.2 40 160 24 20.7 24 4,800 80 19.9 20.1 20.0 19.7 19.7 19.5 32.56 31.53 31.68 31.81 32.06 32.01 31.89 5.12 30 4.78 4.63 4.82 4.85 4.81 4.73 120 18 18 3,600 60 4,556 4,727 4,771 4,920 5,107 5,235 5,279 20 80 12 12 2,400 40 27.44 26.75 27.05 26.98 27.21 27.20 27.16 11.76 11.84 12.03 12.23 13.33 13.39 13.30 10 40 6 6 1,200 20

0 2011*2 2013 2014 2015 2016 2017 2018 FY 0 0 2011*2 2013 2014 2015 2016 2017 2018 FY 0 0 2011 2013 2014 2015 2016 2017 2018 FY 0

*1 CO2 emissions (= GHG emissions): The CO2 equivalent of greenhouse gas emissions (=GHG emissions) *2 Base year targets in the JR-West Group Medium-Term Management Plan 2017

Station and Train Garbage Status of 3Rs in Railway Materials Status of 3Rs in Railway Materials (Recyclable) Recycling (Facility Construction) (Railcars) Garbage volume Recycled volume Industrial waste Regenerated Industrial waste Regenerated Recycling rate Reused Sold Recycling rate Reused Sold Recycling rate (Thousand tons) (%) (Thousand tons) (%) (Thousand tons) (%) 98.3 98.3 98.3 98.6 204.3 90.8 93.2 91.7 94.3 5 100 200 100 20 100 98.7 96.4 96.7 93.9 16.5 61.9 151.9 156.6 14.3 4 80 160 27.7 80 16 14.0 80 14.5 128.6 28.0 11.7 3 60 120 30.2 8.8 60 12 60 9.3 5.0 4.9 5.2 5.1 5.4 5.3 4.8 4.7 10.9 13.5 11.0 11.0 2 40 80 125.2 105.9 111.5 40 8 40 83.3 6.7 1 20 40 20 4 0.2 0.2 0.2 0.4 20 1.5 1.6 1.9 1.8 2.7 4.2 9.2 5.7 0.9 1.1 1.2 0.8 0 2015 2016 2017 2018 FY 0 0 2015 2016 2017 2018 FY 0 0 2015 2016 2017 2018 FY 0

36 WEST JAPAN RAILWAY COMPANY Human Resources / Motivation page 42

Employee Composition by Age, as of April 1, 2018 Percentage of Female Workers (Indicating Managers and 8.61 Age Executives Separately) 0-19 410 (1%) Overall Managers Executives

20-24 1,990 (7%) 12% 2% 2% * Expect for an external director 25-29 4,000 (14%) * As of April 1, 2018 30-34 6,270 (22%) 35-39 4,120 (15%) Percentage of People Taking Paid Leave

40-44 1,790 (6%) Overall 45-49 810 (3%) 79% 50-54 1,480 (5%) * Average number of days used in fiscal 2018: 15.7 of 20 days 55~ 7,510 (26%) eople

Number of Hires by Gender and Female Employees Changes in Proportion of Women Hires Women Men Proportion of Women

(People) (%) (People) 30 28 1,500 30 3,600 200 25 23 24 1,200 24 2,880 160 924 839 880 903 890 900 18 2,160 120 3,138 3,230 3,117 3,308 3,514 709 646 600 641 660 624 12 1,440 80

300 6 720 40 215 198 220 257 266 0 2015 2016 2017 2018 2019 FY 0 0 2015 2016 2017 2018 2019 FY 0

Average Overtime Hours People Taking Childcare Leave Women Men

(Hours per month) (People) 1,001 15 1,000 888 205 804 165 14 800 665 132 83 13 600 531 14:56 81 14:29 14:40 14:15 796 672 723 12 13:40 13:46 400 582 450 11 200

10 2014 2015 2016 2017 2018 FY 0 2014 2015 2016 2017 2018 FY

Corporate Governance page 44

Board of Directors Composition Audit & Supervisory Board Composition Remuneration of Directors and Audit &

(People) (People) Supervisory Board Members Category Remuneration Amount Directors ¥447 million Auditors Audit & Supervisory Board ¥ 77 million External External Members Directors Men Women Directors 1 Auditors Total ¥525 million 10 14 1 5 3

Annual Report 2018 37 ESG Section Safety

Mid-Term Management Plan 2017 in Retrospect

We achieved steady results in improving safety, while at the same time reiterating the various challenges and issues of our past efforts. • An overall downward trend in number of transport disruptions caused by railway accidents and internal causes as a result of the cumulative effects of various hard and soft initiatives. • Several shortcomings in past efforts were made clear, mainly as a result of the Shinkansen critical incident of December 2017

Vision for the Future In light of the Shinkansen critical incident, we must not based on securing and improving our customers’ safety only comply with fundamental motions and rules borne in order to meet their expectations and gain their confi- from lessons of the past, but we must also increase our dence. We are fully determined to prevent another sensitivity to when faced with scenarios that involve occurrence like the accident on the Fukuchiyama Line sensing danger, and after being unable to confirm safety, from ever happening again, and the entire Group is ded- stopping the train without hesitation. In these way, we icated to giving constant, steady, and growing efforts to will improve safety across the entire Group. this purpose. At the same time, we will continue to pur- Our vision for the future is “a safe and comfortable sue safety, and aim to improve the entire railway from society filled with meetings among people and smiles.” every angle. To achieve this vision, we understand that it must be

JR-West Group Railway Safety Think-and-Act Plan 2022

Safety management with the participation of all employees Each employee considers specific risks

Enhancement of railway systems that maintain safety P Implementation of safety Enhancement of organizational think-and-act initiatives safety management A D by each individual C Fostering the spread of safety-first awareness

• No train accidents that result in casualties among our customers, no railway labor acci- dents that result in fatalities among our employees (over a 5-year period) Target Indicators / • Train accidents involving people that result in casualties among our customers, accidents at Direction level crossings, transportation disruptions due to internal factors ➔ Further 10% reduction*

* From Safety Think-and-Act Plan 2017 objectives

38 WEST JAPAN RAILWAY COMPANY Strategy in the Medium-Term Management Plan 2022

We will strive to successfully implement the “JR-West Group Railway Safety Think-and-Act Plan 2022,” and to prevent serious accidents and labor accidents. • In accordance with our unchanging determination to ensure that we will never again cause an accident such as that on the Fukuchiyama Line, safety is positioned as our most important strategy and is the core of the JR-West Group Medium-Term Management Plan 2022. We will steadily implement the JR-West Group Railway Safety Think-and- Act Plan 2022, which was formulated as a detailed safety plan. • “Fostering the spread of safety-first awareness” is the basis of the plan. Through the “enhancement of organizational safety management” and the “implementation of safety think-and-act initiatives by each individual,” we will work to “enhance railway systems that maintain safety” and strive to realize “safety management with the participation of all employees.” In these ways, we will aim to prevent serious accidents and labor accidents. • Specifically, under the conditions that we face, to maintain the safety of customers and colleagues, we will start by having each individual stop briefly and “think carefully about specific risks.” This will lead to decisions and actions that prioritize safety above everything else.

Fostering the spread of Enhancing organizational safety-first awareness safety management

• Implementing initiatives to ensure that we always re- • Increasing the quality of risk assessment (enhancing member the Fukuchiyama Line accident, understanding methods of identifying latent risks, etc.) and implementing policies related to safety (Enhancing safety think-and-act training, etc.) • Enhancing safety management systems (construction / operation of PDCA cycle, etc.) • Increasing sensitivity to safety, implementing safety-first approach to decision-making and actions (Fostering a • Constructing frameworks for the formulation / mainte- sense of values that emphasizes that the “train is to be nance of practical rules stopped without hesitation,” etc.)

Implementation of safety think-and-act Enhancing railway systems that initiatives by each individual maintain safety

• Creating environments that facilitate reporting • Advancing tangible measures (Implementing invest- ment, technical development, etc., to realize a high level • Implementing self-directed initiatives, self-discipline of safety)

• Considering / instituting measures that can be imple- • Advancing intangible measures (Implementing practical mented together with colleagues human factor training incorporating VR, etc., enhancing safety-first flexible response capabilities, etc.)

Annual Report 2018 39 ESG Section Customer Satisfaction

Mid-Term Management Plan 2017 in Retrospect

Results • Greater customer satisfaction on a variety of levels through improvements such as barrier-free facilities, multilingual information and broadcasting, more comprehensive provision of information, improved toilets, station and train interior beautification, and better reception from staff • Customer satisfaction survey results that confirm steady improvement • Aim to further improve quality of service and customer satisfaction in response to customer needs which change, advance, and diversify over time.

Vision for the Future Our plan for the future is, as it was before, to pursue that meet more diversified needs and expectations. We customer-oriented management with the aim of creating will also make active use of our technology, look to the JR-West fans among customers. We are building up our future, and provide services suited to each region. In Think-and-Act philosophy person by person within the addition, we aim to create more services for both our cus- company as we work to realize our Customer Satisfac- tomer and the communities living along our train lines. tion Vision 2022, which shows what kind of feeling we The entire JR-West Group strives to build warm rela- want to instill in our customers. Part of this requires listen- tionships that foster a feeling of fellowship and give this ing to customers’ voices from the front line, and in light of warmth to our customers, and will continue to use these an aging population, increased visitors to Japan, and the relationships to create happiness among our customers advancement of women in society, we see a chance to and the communities along the lines where it operates. embrace the changing landscape by providing services

Make customers into “fans of JR-West” Objective Realize and continue that over 80% of customers gave us an overall 4.0 or higher on customer service questionnaires (a “favorable” rating)

Customer Satisfaction Vision 2022 The Think-and-Act Declaration for Customer Satisfaction The areas where will apply our Think-and-Act philosophy are as follows: 4 JR-West Group that customers feel warm [Exceeding Amazing and surprising 2 3 4 expectations] customers We will think We will work We will value and act with a as a team the basics, Level of high level of then refine our customer expectations sensitivity knowledge and skills. Condition in which 3 business activities Making constantly reflecting [Meeting even more expectations] customers’ perspec- customers happy We will think from the customer’s tives have taken hold 1 point of view first as corporate culture 2 = Customer-based We will make safety the basis of all 0 aspects of Think-and-Act Making customers management [Comfort] comfortable without even realizing it The CS Mind

1 Individuality Compassion Diversity Ensuring that customers [Peace of mind understand that securing Pride in one’s work and trust] peace of mind is a matter of course for us Safety Charter

Belief in the corporate philosophy Knowledge that all work is connected to the customers

40 WEST JAPAN RAILWAY COMPANY Coexistence with Communities

Mid-Term Management Plan 2017 in Retrospect

We continued to revitalize local communities through unified efforts made in collaboration with the local residents. • Invigoration of the Hokuriku area by maximizing effect of the opening of the Kanazawa-Tsuruga segment of the Hokuriku Shinkansen • Development of terminal stations, including Osaka Station • Promotion of dialogues with local communities to realize sustainable railways and transport services

Vision for the Future Factors such as a shrinking market and a dwindling labor social infrastructure, JR-West is making unified efforts force due to the declining population forecast harsh cir- alongside local communities to make the areas along the cumstances surrounding each region of the country. On railways places that anyone would want to visit or live in. the other hand, visitors to Japan are projected to go up, In doing so, we add to the development of local regions and this, coupled with large-scale projects such as the and economies and therefore contribute to creating “a Umekita subway station adjoining Osaka Station, provide safe and comfortable society filled with meetings among many opportunities for growth in our business areas. As a people and smiles.” Group whose business is railways, which are crucial to

“I Want to Go…I Want to Go Again!” Showcasing Wide Attraction Zones We are committed to highlighting the unique sights and Development of key terminal stations experiences in the western Japan area and are working In addition, we are developing major stations to serve as to showcase wide attraction zones through branding bases for the tourism routes and as points to transmit and promotion. Part of these efforts involve the Setouchi local appeal to tourists. One example of this is Onomichi Palette Project, which was developed as a collaboration Station, where we have rebuilt the station and added a between the railway and non-railway businesses. This tourist information center in collaboration with the city, project is intended to highlight the Setouchi area of and will establish accommodations for cyclists as well western Japan, which contains a rich variety of sight- as commercial facilities. seeing activities. Through this project, we aim to turn the Setouchi area into a welcoming region for many first time and repeat visitors from Japan and overseas by creating tourism routes and developing contents that capitalize on local industry and culture.

New station building for Onomichi Station

Annual Report 2018 41 ESG Section Human Resources / Motivation

Mid-Term Management Plan 2017 in Retrospect

Workstyle Reforms • Enhancement of childcare and nursing systems • It is necessary to promote the use of these systems and create an environment where personnel who are engaged in childcare, nursing or another situation are able to prosper. Human Resource Cultivation • Initiatives to improve practical skills and facilitate the passing on of technical expertise in specialized fields for the coming future • Establishment of a management training system, and promotion of leadership skill development at the management level

Health Management • Promotion of measures appropriate to time and social trends (recognized by White 500 certification, etc.) • Going forward, the Group will develop concrete initiatives toward achieving the measures formulated in its Health Management Plan

Vision for the Future In our Medium-Term Management Plan 2022, we employee growth. By repeating this cycle we will meet declare that human resources and their motivation are the expectations of our customers and stakeholders, key parts of our management base, and make every which will contribute to the Group’s sustainable growth effort to cultivate it in our human resources across the in the future. For these reasons we will continue to our Group. An important factor to this strategy succeeding efforts to cultivate human resources. is the mindset possessed by each and every member of Growth of human resources •• growth of business the Group to Think-and-Act based on the customer and the field. In addition, our management will make use of what is happening on the front lines to gain peace of mind and trust and provide value to our stakeholders. Employees with Human resources comprise the driving force toward the initiative to Think and Act Vision for Human this goal, and the growth of each individual is a major Resources Cultivation power of JR-West. In that light, we have set up both a Promote growth Vision for Human Resources Cultivation and a Founda- and success A workplace that A business group tion for Human Resource Cultivation to realize our ideal demonstrates synergy with diversity vision of the future. The goal of these initiatives is to cre- and compassion as a weapon

ate a cycle where facilitating employee growth leads to Mental and Physical Health Foundation for Pride and Motivation Human Resource (health management) business growth, and business growth leads to more Cultivation

Promoting Diversity and Workstyle Reforms In order to become a business group with diversity as weapon, we are promoting diversity and workstyle reforms, which will allow a variety human resources to be active in the workplace. Each of our employees can lead a fulfilling life, flourish and grow at work, which will allow them to better respond to diversifying needs and customer expectations.

A business group with diversity as a weapon

Diversity and Innovation We strive to create a climate where a variety of human resources can flourish, show their ability to the fullest, and ultimately create results. —Paths to our Ideal Vision of the Future We are working to create a state of operations where each and every one of a variety of personnel can maximize their productivity.

The Pillars Supporting our Initiatives Workstyle reforms Promote diversity Building an environment where a variety of human resources can flourish Make it possible for employees with diverse backgrounds and attributes to prosper

Build a system and foster an environment where a wide Accept and leverage ways of thinking, Establish an environment and systems in which a diverse array of human resources can flourish create a positive climate group of human resources can play an active role

42 WEST JAPAN RAILWAY COMPANY Global Environment

Mid-Term Management Plan 2017 in Retrospect

Results • Reached all of our targets by introducing new technologies and encouraging Think-and-Act eco-mindsets among our employees • Reached energy consumption-related goals by promoting the introduction of energy-saving vehicles and high-efficiency equipment in addition to reaching power goals • Reached recycling-related goals by promoting the 3Rs* for recyclable and generated waste • Penetration of biodiversity conservation efforts and environmental management activities

Issues • Contribute to the protection of the global environment by further utilizing our technology and ingenuity • Continue to perform activities to protect the global environment through instilling the eco-mindset in each and every one of our employees

* 3Rs: Reduce (saving resources and extending use), Reuse, Recycle Vision for the Future

The entire JR-West Group recognizes that protecting impact by methods such as reducing the CO2 emissions the global environment is an important duty for any caused by transportation as a whole, by contributing to company. In that light, JR-West is working to realize a the creation of a recycling-oriented society, and by cur- society where sustainable development is possible with tailing the impact on nature and ecosystems. our understanding of the interaction between business activities and the environment. Specifically, we have fos- tered a base “eco-mindset” in all of our employees so that they are aware of the importance of environmental Corporate social responsibility conservation. This, based on our four pillars, are indica- tive our various global environment protection activities. Energy-saving Contributions Promotion of Coexisting Generally speaking, trains are energy efficient and initiatives for to building a environmental with preventing recycling- management communities environmentally friendly vehicles compared to other global oriented and nature warming society modes of transportation. In addition to pursuing further (saving energy conservation of its vehicles, the JR-West Group resources) has been devising methods to get more customers to select railways as their mode of transportation and therefore lessen their impact on the global environment. Think-and-act eco mindsets among individual employees In this way, we will continue to reduce environmental

Efforts to Prevent Global Warming (Energy Conservation) Introducing Power Storage Systems In March 2018, we introduced a power storage system at our Yasu location. This device is designed to take regener- Utilization of regenerative Electric power storage ative power generated when a train applies its brake and Substation electric power system Substation (energy Lithium-ion battery temporarily store it into a storage battery. This power is conservation) discharged when a running train accelerates nearby, mak- ing it possible to efficiently utilize energy. (During braking) Charge Discharge (During accelerating)

Power Storage Mechanism

Annual Report 2018 43 ESG Section Corporate Governance

Based on its Corporate Philosophy and Safety Charter, JR-West works to fulfill its corporate social responsi- bility and strives to increase corporate value over the medium to long term and build long-term trust-based relationships with its shareholders and various other stakeholders. To realize these goals, we are endeavoring as a group to put in place and operate an appropriate corporate governance system. We will provide value to our stakeholders, including sustained expansion of shareholder value, in order to create “a safe and comfort- able society filled with meetings among people and smiles.”

Overview of the Corporate Governance System As a Company with Audit & Supervisory Board Members perform on-site audits at branch offices and departments, under the Companies Act, the Company ensures trans- monitor execution of duties of the Board of Directors, and parency and fairness of management through appropri- provide advice and recommendations based on the audit ate audits conducted by Audit & Supervisory Board policies and plans formulated by the Audit & Supervisory Members regarding the execution of duties by directors. Board.

Board of Directors In addition, in compliance with the Corporate Gover- The Board of Directors receives advice on important nance Code, which came into force in June 2015, the management matters from five external directors based Company discloses its basic views and status of initiatives on their extensive experience and specialized knowledge, concerning corporate governance. To enhance corporate while conducting timely and appropriate decision-making, value, we promote initiatives in the spirit of the code, such and performing effective supervision and monitoring. as enhancing the effectiveness of the Board of Directors Management Committee and disclosing information in an appropriate and timely As a general rule, the Management Committee meets manner. Furthermore, in order to establish a risk manage- once a week to discuss fundamental management mat- ment style able to manage and reduce risks in an inte- ters in an effort to accelerate decision-making and busi- grated way, we have established a Risk Management ness execution. Committee to strengthen our risk management system. Moving forward, we continue to work to improve our Audit & Supervisory Board effectiveness based on operational circumstances, and Audit & Supervisory Board Members attend important strive to create an optimal system in response to changes meetings, including meetings of the Board of Directors, in the business environment surrounding the Company.

General Meeting of Shareholders

Election / Dismissal Election / Dismissal Election / Dismissal

Remuneration Advisory Audit & Supervisory Board Members Committee Report Audit Board of Directors (Audit & Supervisory Board) Coordination Report Report Audit & Supervisory Board Office (Ernst & Young(Ernst ShinNihon LLC) Refer / Monitoring / Supervision Report important matters Audit Audit Accounting Auditor Coordination President and Representative Director Risk Management Management Committee Committee Report Management at the level of Representative Director, Head Office Executive Officer, and Full-time Audit & Supervisory Board Member Audit Audit Instructions / Report Supervision Refer / Report matters Instructions / Refer / Report related to operations Supervision Inquiry & Auditing Department Coordination Audit Audit Risk Corporate Group companies Countermeasure Ethics Executive Officers / Technical Directors Committee Committee Consolidated subsidiaries Head office departments and offices, branches, worksites Coordination Audit

Notes:1. The Company shall establish an Audit & Supervisory Board Office under the direct control of the Audit & Supervisory Board members and appoint its employees to engage exclusively in assisting the Audit & Supervisory Board members. 2.  denotes audit scope of the Accounting Auditor.

44 WEST JAPAN RAILWAY COMPANY Efforts to improve the evaluation and effectiveness of the Board of Directors The Board of Directors fulfills its obligations in terms of establishing an environment that supports appropriate risk taking by management and offering highly effective monitoring and supervision. Accordingly, the Board has been evaluated as func- tioning effectively. The Company is engaged in various efforts to maintain and improve this effectiveness going forward.

Specific Efforts to Improve Effectiveness of the Board of Directors

1 Development of communication system for external directors ① Explanation of important management matters, etc. Establish opportunities to explain matters to external directors in addition to explanations given prior to Board meetings ② Provision of information regarding actual business conditions and background for measures taken, etc. On-site visits to stations, command centers and other relevant areas, as well as opinion exchanges with employees ③ Holding liaison meetings with external directors as the main constituents Meetings to discuss global and social trends that may be relevant in future affairs handled by the Board of Directors as well as other topics related to management ④ Any other necessary explanations regarding important questions or items Provides additional explanations for points and questions brought up at Board of Directors’ meetings. 2 Sharing content of discussions from meetings of the Board of Directors The content of discussions and points brought up at meetings of the Board of Directors are communicated and shared at meetings of the Management Commit- tee, and subsequently utilized to draft and promote initiatives. 3 Conducting interviews with directors We conduct interviews concerning the management of the Board of Directors with all directors on a yearly basis and implement measures necessary for improving and revitalizing effectiveness based on the results.

Remuneration to Directors and Auditors We have abolished the director bonus system and con- • Monthly remuneration of directors (excluding external solidated it into monthly remuneration, set at an appro- directors) consists of basic remuneration, plus perfor- priate level by taking into consideration remuneration of mance compensation determined each fiscal year other companies as surveyed by a specialized external based on performance in terms of achieving medi- agency. In addition, a Remuneration Advisory Commit- um-term goals related to safety and management. tee has been established to raise the objectivity and • In consideration of their duties, we will not pay perfor- transparency of remuneration of directors. This commit- mance compensation amounts to external directors tee consists of three or more directors the majority of and auditors, and will only pay basic remuneration in whom are external directors and deliberates the remu- consideration for the execution of their duties. neration etc. of directors from an objective and fair per- spective and reports to the Board of Directors.

Remuneration of Directors (FY 2018 Results)

Remuneration Type of remuneration and amount (millions of yen) Number of eligible Category amount officers (millions of yen) Basic remuneration Stock options Bonus Retirement bonus Directors (excluding external directors) 397 397 — — — 9 Auditors (excluding external auditors) 31 31 — — — 1 External directors and auditors 96 96 — — — 8

Message from an External Director

We will enhance the soundness and transparency of management from a third-party perspective Further strengthening of corporate governance is required as the degree of complexity and sophistication of social responsibilities expected of corporations continues to grow. I hope to make use of all of the knowledge I have acquired concerning university management and information and communications technology to ensure the soundness and transparency of management from the third-party perspective that is expected of an external director, and in doing so, to acquire the peace of mind and trust of stakeholders. If the goal is to create new corporate value in order to realize an ideal future society, it is indispensable to enhance governance, and I believe that the Board of Directors should take an aggressive stance to do so. Through frank and vigorous discussions with the executing side, we will strive to improve both long-term sustainable growth and corpo- rate value of the Group. Hideo Miyahara

Annual Report 2018 45 ESG Section Corporate Governance

Board of Directors and Audit & Supervisory Board Members As of June 21, 2018

Method for Appointing Directors and Others Directors and others are appointed by the procedure future, more clearly defining management responsibili- prescribed in the Companies Act and based on the ties and further strengthening corporate governance by selection criteria stipulated, which includes high ethical increasing the opportunities to gain shareholder confi- standards, personality, and management capabilities. dence, the Company desires to shorten the term of office With the aim of building up a management system to of Directors from the current two years to one year. respond to change in the business environment in the

Board of Directors

Seiji Manabe Tatsuo Kijima President, Representative Director, Chairman of the Board of Directors and Executive Officer

Fumito Ogata Kazuaki Hasegawa Nobutoshi Nikaido Yoshihisa Hirano Vice Presidents, Representative Vice Presidents, Representative Vice Presidents, Representative Vice Presidents, Representative Directors, and Executive Officers Directors, and Executive Officers Directors, and Executive Officers Directors, and Executive Officers

Directors Directors and Senior Executive Officers

1 Professor, Faculty of Regional Development Shinichi Handa Yumiko Sato* Studies, Otemon Gakuin University

1 Professor, Doshisha University Graduate Shoji Kurasaka Yuzo Murayama* School of Business Keijiro Nakamura Norihiko Saito*1 Senior Adviser, KINDEN CORPORATION Visiting Professor, Graduate School of Toshihiro Matsuoka Hideo Miyahara*1 Information Science and Technology, Osaka University

1 Professor, Graduate School of Law, Kyoto Hikaru Takagi* University

Audit & Supervisory Board Members

Mikiya Chishiro*2, 3 Yasumi Katsuki*3 Certified Public Accountant, Katsuki Office

Naoki Nishikawa*2 3 Chairman and Representative Director, Yoshinobu Tsutsui* Nippon Life Insurance Company

*1 External Director *2 Full-Time Auditor *3 External Auditor

46 WEST JAPAN RAILWAY COMPANY Executive Officers As of June 21, 2018

President, Representative Director, and Deputy Senior General Manager of Kansai Executive Officer Urban Area Regional Head Office / General Makiko Tada Manager of Kobe Branch, Kansai Urban Area Regional Head Office Tatsuo Kijima Deputy Senior General Manager of Business Nobuo Hashimoto Development Headquarters Deputy Senior General Manager of Support- Hideki Mizuguchi ing Headquarters for the Victims of the Derailment Accident on the Fukuchiyama Line Vice Presidents, Representative Directors, and Senior General Manager of Marketing Executive Officers Hiroshi Muro Department, Railway Operations Headquarters General Manager of Transport Department, Yasuyuki Mito Railway Operations Headquarters Fumito Ogata Senior General Manager of Railway Opera- tions Headquarters Yoshihiko Ito General Manager of Wakayama Branch Makoto Kitano General Manager of Hiroshima Branch Senior General Manager of Business Kazuaki Hasegawa Development Headquarters Deputy Senior General Manager of IT Koichi Taji Headquarters Senior General Manager of Tokyo Headquar- General Manager of Railway System Nobutoshi Nikaido ters Eiji Tsubone Planning Department, Railway Operations Headquarters Senior General Manager of Shinkansen Deputy Senior General Manager of Kansai Yoshihisa Hirano Operations Division, Railway Operations Urban Area Regional Head Office / General Headquarters Masatoshi Miwa Manager of Kyoto Branch, Kansai Urban Area Regional Head Office Takashi Hinata General Manager of Construction Department Directors and Senior Executive Officers Deputy Senior General Manager of Kansai Urban Area Regional Head Office / General Deputy Senior General Manager of Railway Masanobu Hirano Manager of Osaka General Control Center, Operations Headquarters / Kansai Urban Area Regional Head Office Shinichi Handa General Manager of Transport Safety Department, Railway Operations Headquar- Nobuhiko Takeichi Deputy Senior General Manager of Tokyo ters Headquarters Senior General Manager of Supporting General Manager of Yonago Branch / Senior Headquarters for the victims of the derail- Yasuo Umetani General Manager of Sanin Regional ment accident on the Fukuchiyama Line / Development Headquarters, Yonago Branch Shoji Kurasaka General Manager of Deliberation Department Tatsuya Tanaka General Manager of Fukuchiyama Branch of the Derailment Accident on the Fukuchi- yama Line / General Manager of General Yoshito Fujiwara General Manager of Finance Department Affairs Department Yasuhiro Arita General Manager of Okayama Branch Senior General Manager of Kansai Urban General Manager of Corporate Communica- Keijiro Nakamura Area Regional Head Office Jun Fukushima tions Department General Manager of Electrical Engineering Deputy Senior General Manager of Railway Takahiro Mitsuno Department Operations Headquarters / Deputy Senior Toshihiro Matsuoka General Manager of Shinkansen Operations Division, Railway Operations Headquarters Senior Technical Director Senior Executive Officer Atsushi Kawai General Manager of Safety Research Senior General Manager of Corporate Institute Atsushi Sugioka Planning Headquarters / Senior General Manager of IT Headquarters

Technical Director Executive Officers General Manager of Technical Research & Deputy Senior General Manager of Shinkan- Yasushi Neki Development Department, Railway Opera- Kuniaki Morikawa sen Operations Division, Railway Operations tions Headquarters Headquarters Deputy Senior General Manager of Corpo- Masafumi Ise rate Planning Headquarters Deputy Senior General Manager of Kansai Urban Area Regional Head Office / General Tadashi Kawai Manager of Osaka Branch, Kansai Urban Area Regional Head Office Hiroaki Maeda General Manager of Kanazawa Branch Yutaka Nakanishi General Manager of Personnel Department Deputy Senior General Manager of Business Koichi Haruna Development Headquarters

Annual Report 2018 47 ESG Section Organizational Structure

As of June 1, 2018

Audit & Audit & Supporting Headquarters for the Victims Supervisory Supervisory of the Derailment Accident on Board Board Member the Fukuchiyama Line

Deliberation Department of the Derailment Accident on the Fukuchiyama Line Audit & Supervisory Board Transport Safety Department Member’s Office Inquiry & Auditing Department Safety Management Strategy Office

Corporate Ethics & Safety Planning Office Risk Management Department

Customer Satisfaction Department Ethics Office

Board of JR-West Customer Center President Corporate Planning Headquarters Directors Marketing Department CSR Implementation Office Tokyo Marketing Division Group Management Planning Office Kyushu Marketing Division Capital Strategy Office Mizukaze Promotion Business Department Group Inbound Tourism Promotion Office Inbound Tourism Division IT Headquarters Shanghai Representative Office Secretary Office Shingapore Representative Office General Affairs Department Railway System Planning Department Human Rights Office Transport Security Systems Office Legal Affairs Office Railway Operation System Designing Office Corporate Communications Department Open Innovation Office Railway Culture Promotion Office Overseas Railway Business Promotion Office Personnel Department Technical Research & Development Department Staff Training Center Station Operations Department Osaka Railway Hospital Transport Department Health Promotion Center Driver Training Center Finance Department Train Crew Training Center Tokyo Headquarters Rolling Stock Department Railway Operations Headquarters Rolling Stock Design Office Safety Research Institute Track & Structures Department Structural Engineering Office Track & Structures Engineering Office Construction Department Electrical Engineering Department Business Development Headquarters Electrical Technology Research Office Osaka Construction Office Shinkansen Operation Divisions Osaka Electric Construction Office Shinkansen Transport Safety Department Kanazawa Branch Shinkansen Planning Department Kanazawa Shinkansen General Control Center Shinkansen Station Operations Department

Kansai Urban Area Regional Head Office Kyoto Branch Shinkansen Transport Department

Osaka General Control Center Osaka Branch Shinkansen Rolling Stock Department

Wakayama Branch Kobe Branch Shinkansen Track & Structures Department

Fukuchiyama Branch Shinkansen Electrical Engineering Department

Okayama Branch Fukuoka Branch

Okayama General Control Center Tokyo Shinkansen General Control Center

Yonago Branch

Hiroshima Branch

Hiroshima General Control Center

48 WEST JAPAN RAILWAY COMPANY Financial Section

Contents 50 Consolidated 10-Year Financial Summary 52 Management’s Discussion and Analysis of Operations 54 Operational and Other Risk Information 62 Consolidated Balance Sheet 64 Consolidated Statement of Profit or Loss 65 Consolidated Statement of Comprehensive Income 66 Consolidated Statement of Changes in Net Assets 67 Consolidated Statement of Cash Flows 68 Analysis of JR-West Operations 71 Investor Information 72 Consolidated Subsidiaries 74 Corporate Data

For details about financial information, please see reference documents on the Company’s website. https://www.westjr.co.jp/global/en/ir/library/annual-report/2018/

Annual Report 2018 49 Financial Section Consolidated 10-Year Financial Summary

West Japan Railway Company and its consolidated subsidiaries Years ended March 31

Millions of Billions of yen U.S. dollars*1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 Operations: Operating revenues ¥1,275.3 ¥1,190.1 ¥1,213.5 ¥1,287.6 ¥1,298.9 ¥1,331.0 ¥1,350.3 ¥1,451.3 ¥1,441.4 ¥1,500.4 $14,155 Operating income 122.5 76.5 95.9 109.7 129.4 134.5 139.7 181.5 176.3 191.3 1,805 Profit attributable to owners of parent 54.5 24.8 34.9 29.4 60.1 65.6 66.7 85.8 91.2 110.4 1,042

Balance Sheets: Total assets 2,461.8 2,546.3 2,672.4 2,642.9 2,613.7 2,687.8 2,786.4 2,843.1 3,007.8 3,072.9 28,990 Long-term debt and payables*2 953.2 1,038.9 1,102.6 1,068.8 983.0 980.7 1,004.2 1,001.8 1,037.9 1,032.2 9,737 Total net assets 689.6 702.1 721.2 733.5 768.1 807.3 846.7 926.3 1,032.6 1,116.3 10,531

Cash Flows: Net cash provided by operating activities 178.8 161.3 223.2 206.2 238.0 237.7 223.6 259.8 234.1 275.1 2,595 Net cash used in investing activities (172.6) (208.7) (246.2) (199.1) (154.7) (165.3) (212.9) (233.2) (295.8) (166.3) (1,569) Net cash (used in) provided by financing activities (10.1) 54.6 51.4 (36.8) (85.2) (47.8) 1.6 (31.3) 44.3 (71.4) (673)

Other Data: Depreciation 137.0 141.9 150.8 169.3 160.8 153.9 149.5 156.6 162.7 163.5 1,543 Capital expenditures, excluding contributions received for construction 163.9 210.1 260.0 195.4 152.9 166.7 225.6 233.1 192.4 169.4 1,598 EBITDA*3 259.5 218.4 246.8 279.1 290.3 288.5 289.3 338.1 339.1 356.1 3,359

Yen U.S. dollars*1 Per Share Data*4: Profit attributable to owners of parent ¥ 27,729 ¥ 12,837 ¥ 18,066 ¥ 152.29 ¥ 310.87 ¥ 338.98 ¥ 344.58 ¥ 443.53 ¥ 471.52 ¥ 570.72 $ 5.38 Cash dividends 7,000 7,000 8,000 90.00 110.00 115.00 125.00 135.00 140.00 160.00 1.50 Net assets 339,113 345,568 355,712 3,632.41 3,850.82 4,048.31 4,138.65 4,534.29 4,857.50 5,273.42 49.74

% Ratios: ROA (Operating income basis) 5.0 3.1 3.7 4.1 4.9 5.1 5.1 6.4 6.0 6.3 ROE 8.4 3.7 5.2 4.2 8.3 8.6 8.4 10.2 10.0 11.3 DOE 2.1 2.0 2.3 2.5 2.9 2.9 3.1 3.1 3.0 3.2 Rate of total distribution on net assets*5 — — — — — 2.9 3.1 3.1 3.0 3.2 Equity ratio 26.7 26.3 25.8 26.6 28.5 29.2 28.8 30.9 31.3 33.2

*1 Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018. *2 Long-term debt and payables includes the current portion of long-term debt and long-term payables. *3 EBITDA = Operating income + Depreciation + Amortization *4 The Company conducted a stock split on July 1, 2011, at a ratio of 100 ordinary shares for each ordinary share. *5 Rate of total distribution on net assets = (Total dividends + Acquisitions of treasury stock) / Consolidated net assets

50 WEST JAPAN RAILWAY COMPANY Millions of Billions of yen U.S. dollars*1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 Operations: Operating revenues ¥1,275.3 ¥1,190.1 ¥1,213.5 ¥1,287.6 ¥1,298.9 ¥1,331.0 ¥1,350.3 ¥1,451.3 ¥1,441.4 ¥1,500.4 $14,155 Operating income 122.5 76.5 95.9 109.7 129.4 134.5 139.7 181.5 176.3 191.3 1,805 Profit attributable to owners of parent 54.5 24.8 34.9 29.4 60.1 65.6 66.7 85.8 91.2 110.4 1,042

Balance Sheets: Total assets 2,461.8 2,546.3 2,672.4 2,642.9 2,613.7 2,687.8 2,786.4 2,843.1 3,007.8 3,072.9 28,990 Long-term debt and payables*2 953.2 1,038.9 1,102.6 1,068.8 983.0 980.7 1,004.2 1,001.8 1,037.9 1,032.2 9,737 Total net assets 689.6 702.1 721.2 733.5 768.1 807.3 846.7 926.3 1,032.6 1,116.3 10,531

Cash Flows: Net cash provided by operating activities 178.8 161.3 223.2 206.2 238.0 237.7 223.6 259.8 234.1 275.1 2,595 Net cash used in investing activities (172.6) (208.7) (246.2) (199.1) (154.7) (165.3) (212.9) (233.2) (295.8) (166.3) (1,569) Net cash (used in) provided by financing activities (10.1) 54.6 51.4 (36.8) (85.2) (47.8) 1.6 (31.3) 44.3 (71.4) (673)

Other Data: Depreciation 137.0 141.9 150.8 169.3 160.8 153.9 149.5 156.6 162.7 163.5 1,543 Capital expenditures, excluding contributions received for construction 163.9 210.1 260.0 195.4 152.9 166.7 225.6 233.1 192.4 169.4 1,598 EBITDA*3 259.5 218.4 246.8 279.1 290.3 288.5 289.3 338.1 339.1 356.1 3,359

Yen U.S. dollars*1 Per Share Data*4: Profit attributable to owners of parent ¥ 27,729 ¥ 12,837 ¥ 18,066 ¥ 152.29 ¥ 310.87 ¥ 338.98 ¥ 344.58 ¥ 443.53 ¥ 471.52 ¥ 570.72 $ 5.38 Cash dividends 7,000 7,000 8,000 90.00 110.00 115.00 125.00 135.00 140.00 160.00 1.50 Net assets 339,113 345,568 355,712 3,632.41 3,850.82 4,048.31 4,138.65 4,534.29 4,857.50 5,273.42 49.74

% Ratios: ROA (Operating income basis) 5.0 3.1 3.7 4.1 4.9 5.1 5.1 6.4 6.0 6.3 ROE 8.4 3.7 5.2 4.2 8.3 8.6 8.4 10.2 10.0 11.3 DOE 2.1 2.0 2.3 2.5 2.9 2.9 3.1 3.1 3.0 3.2 Rate of total distribution on net assets*5 — — — — — 2.9 3.1 3.1 3.0 3.2 Equity ratio 26.7 26.3 25.8 26.6 28.5 29.2 28.8 30.9 31.3 33.2

Annual Report 2018 51 Financial Section Management’s Discussion and Analysis of Operations

Consolidated Basis

Results of Operations Retail business segment revenues come mainly from In fiscal 2018, ended March 31, 2018, transportation revenues department stores, sales of goods, and food services. They rose amid a moderate economic expansion, mainly as a result are affected by economic conditions and competition from of increased customer use, and also due to a rebound in rail- other department stores, retailers, and restaurants. In addition, way used from the downturn following the Kumamoto earth- most of the businesses in this segment operate in or near train quake in April 2016, marked by increased use of the Sanyo stations, so they are also subject to the impacts of railway Shinkansen. The retail and real estate business also rose traffic volume. That said, however, train stations enjoy relatively steadily. As a result, operating revenues, operating income, stable usage, so we believe the segment’s operation revenues recurring profit and profit attributable to owners of the parent are less affected by these factors than are the operation reve- all experienced an increase. nues of other companies. Other factors affecting the seg- Operating expenses increased 3.5% year on year, or ¥44.0 ment’s revenues include the opening of new stores and the billion, to ¥1,309.0 billion. While there was a decrease in per- closing of existing stores. sonnel as a result of lowered unit costs, costs related to begin- In the real estate business segment, revenues come mainly ning operations of the TWILIGHT EXPRESS MIZUKAZE, a rise from the leasing of station and nearby facilities and the sale of in operating costs from system-related expenses, increased condominiums along train lines. These revenues are affected expenses for renovations as part of measures to improve by economic conditions and fluctuations of sales in the condo- safety, and an increase in the price of power due to fuel cost minium business, but within the real estate rental business, the adjustments resulted in an overall increase. relatively stable customer traffic at stations, and tenant prefer- Net extraordinary profit and loss improved ¥15.9 billion ence for stations and nearby office buildings for their conve- from the last fiscal year, to a loss of ¥7.1 billion. Key factors nience, means that economic conditions are less of a concern included a provision of loss on liquidation of railway belts for than they are for other companies in the same business. the Sanko Line in the previous fiscal year, and a recorded The other businesses segment’s revenues come mainly impairment loss. from hotel and travel agency operations. Hotel operation rev- Profit attributable to owners of the parent rose 21.0%, or enues are affected by economic conditions, room rates, ¥19.2 billion, from the preceding fiscal year, to ¥110.4 billion. competition from other hotels, and the number of inbound visitors. Revenues for travel agency operations, meanwhile, Factors Affecting Revenues are affected mainly by competition from other travel agencies Railway transportation accounts for the bulk of revenues in the and factors, like economic conditions and terrorism, that transportation operations segment. Railway transportation could discourage travel. In addition to hotel and travel agency revenues depend mostly on numbers of passengers served, operations, the other businesses segment includes construc- and are, therefore, affected by numerous factors such as tion, advertising, and other operations, most of which share competition with airlines and other modes of transportation, the common purposes of strengthening the customer base competition with rival railway companies, economic condi- for the mainstay railway operations, and enhancing station tions, and the falling birthrate and aging population. We believe and other facilities. railway passengers make transportation decisions based on considerations of safety and reliability to begin with, but also Factors Affecting Expenses travel times, the comprehensiveness of the railway network, Due to the age structure of its workforce and other factors, the fares, and levels of comfort. Company is currently experiencing employee retirements at Shinkansen revenues are determined mainly by the num- elevated levels, but through recruitment and other measures, bers of business and leisure passengers served, and are has secured the number of personnel needed to conduct therefore affected by factors such as economic conditions, business operations. For fiscal 2018, personnel costs totaled competition with airlines, and the number of inbound visitors. ¥221.4 billion. In comparison, the Kansai Urban Area Railway Network Furthermore, we are securing human resources that are (Urban Network) serves mainly work and school commuters, more advanced in age by way of an established re-employ- so its revenues, we believe, are much less affected by eco- ment system for retirees. This move has been made in order to nomic conditions. Urban Network revenues, however, are still facilitate a smoother transition of skills and in response to laws susceptible to the falling birthrate, aging population, urbaniza- such as the Act on Stabilization of Employment of Elderly Per- tion, and other demographic changes. For some of JR-West’s sons. We are also thinking in terms of building a system that other conventional lines, intercity transport revenues are can manage the business in the coming future. In that light, we affected by economic conditions and competition with intercity are recruiting with a focus on new graduates for the purpose bus services and private automobiles. Local line revenues, of long-term employment. In addition, we also prioritize secur- meanwhile, are subject to the impacts of competition with pri- ing a diverse set of human resources, employing contract vate automobiles, local economic conditions, and demo- employees and mid-career recruits. In total, we have hired graphic changes. about 900 employees in the current fiscal year.

52 WEST JAPAN RAILWAY COMPANY As for non-personnel costs, the Company is working to operations segment accounted for ¥154.4 billion, the retail achieve cost reductions through structural measures. Railway business segment ¥2.8 billion, the real estate business seg- operations are characterized by (i) ownership of a large amount ment ¥35.7 billion, and the other businesses segment ¥6.5 of facilities and equipment entailing relatively high maintenance billion. Capital expenditures in the transportation operations costs to ensure safety and (ii) a high proportion of fixed costs, segment consisted mainly of railroad infrastructure, primarily which are not linked to revenues. The Company, therefore, with for safety enhancements, and purchases of new rolling stock safety as its highest priority, is striving to cut costs through steps to replace aged rolling stock. The Group’s capital expendi- like the introduction of rolling stock and equipment that are eas- tures in the retail, real estate, and other businesses segments ily maintained, mechanization, and the improvement of existing were mainly for construction of new facilities and renovation infrastructure. At the same time, however, the Company fully of aged facilities. appreciates the weight of its responsibility for the accident on The JR-West Group fully appreciates the weight of its the Fukuchiyama Line, and the Shinkansen critical incident, and responsibility for the accident that occurred on the Fukuchi- is drawing upon all of its capabilities to build a railway that yama Line, and the Shinkansen critical incident, and is drawing assures customers of its safety and reliability. Elevated costs for upon all of its capabilities to build a railway that assures cus- enhancing safety, therefore, are expected to be incurred for the tomers of its safety and reliability. All operational safety equip- foreseeable future. It is also expected that ramping up competi- ment and other infrastructure-based initiatives necessary for tion with other transportation modes will entail additional costs further enhancing safety are being taken and consideration of for purposes like raising service levels, introducing IT for pro- various other measures to bolster safety will continue. moting sales, and increasing outsourcing to improve operational efficiency. Furthermore, JR-West also foresees an increase in Liquidity and Financing costs attributed to electricity price hikes. The JR-West Group receives substantial amounts of cash on a Regarding railway usage charges, JR-West leases the JR daily basis mainly from the transportation operations segment, Tozai Line from Kansai Rapid Railway Co., Ltd. Since fiscal and believes it has secured a sufficient level of liquid assets. 2005, the annual amount of the railway usage charge has At the same time, however, the Group recognizes that been renegotiated every three years and set after considering improving capital efficiency is extremely important for business interest rate changes and other factors. As a result, railway management. Beginning in October 2002, therefore, the Group usage charges have been reduced from fiscal 2012 onward. introduced a cash management service (CMS) to ensure effec- For fiscal 2018, expenses paid were ¥15.2 billion. tive utilization of Group funds. Among non-operating expenses, interest expense is a Regarding financing, the JR-West Group procures funds major factor. The JR-West Group pays close attention to the for the portion of repayments of existing debt, capital expendi- levels of its total long-term liabilities and total interest expense tures, and other expenses that cannot be covered by the with the aim of preserving the stability of operations. For fiscal Group’s cash flows. The Group makes determinations on 2018, the Group’s interest expense declined ¥1.4 billion, to financing methods, including corporate bonds and long-term ¥20.9 billion. bank loans, based on comprehensive consideration of market trends, interest rates, and other factors. For short-term financ- Cash Flows ing needs, the basic policy is to raise the necessary capital Net cash provided by operating activities increased ¥40.9 bil- mainly through short-term bonds. lion year on year, to ¥275.1 billion, due to factors such as an Furthermore, we have concluded commitment line con- increase in profit before income taxes. tracts allowing procurement of funds, in accordance with pre- Net cash used in investing activities fell ¥129.4 billion year scribed conditions, in the event of a major earthquake. on year, to ¥166.3 billion, because of a decrease in purchase of shares of subsidiaries resulting in a change in the scope of consolidation. Net cash provided by financing activities amounted to ¥71.4 billion, a ¥115.7 billion year-on-year change from the net cash disbursed in these activities in the previous fiscal year, due mainly to an increase in redemption of bonds. As a result, cash and cash equivalents as of March 31, 2018, amounted to ¥101.4 billion, up ¥38.1 billion from the end of the previous fiscal year.

Capital Demand and Capital Expenditures In fiscal 2018, the JR-West Group undertook capital expen- ditures totaling ¥199.5 billion, of which the transportation

Annual Report 2018 53 Financial Section Operational and Other Risk Information

The following are issues related to operational and accounting 2. The Law for Partial Amendment of the Law for matters that may have a significant bearing on the decisions of Passenger Railway Companies and Japan Freight investors. Forward-looking statements in the following section Railway Company (Hereinafter, the “Amended JR are based on the assessments of JR-West as of June 23, Law”) (2001, Law No. 61) 2018. Further, the following is a translation of the business The Amended JR Law enacted on December 1, 2001 (herein- risks included in a document the Company submitted pursu- after, the “date of enactment”), excluded JR-East, JR-Central, ant to Japan’s Financial Instruments and Exchange Act. and JR-West (the three JR passenger railway companies operating on Japan’s main island of Honshu, hereinafter, the 1 Relating to Safety “JR passenger railway companies in Honshu”) from the appli- If an accident were to occur in the transportation business it cation of the provisions of the Law for Passenger Railway could jeopardize customers’ lives and result in serious damage Companies and Japan Freight Railway Company (hereinafter, to property, and in turn adversely affect the management of the “JR Law”) (1986, Law No. 88). Specifically, the JR passen- the Company. ger railway companies in Honshu are excluded from the scope With its core business railway operations, the Company of all regulations pertaining to approval of the offering for the recognizes that its most important task is to provide high qual- purchase of shares and others and approval of long-term bor- ity, highly reliable, and safe transportation services. rowings, as defined by the JR Law (Article 5), and approval of However, on April 25, 2005, an extremely serious accident transfers of important assets (Article 8), among others. occurred on the Fukuchiyama Line between Tsukaguchi and According to the Amended JR Law’s supplementary provi- Amagasaki stations. Resolving that such an accident would sions, MLIT, based on the details of the restructuring of Japa- never again occur, the Company formulated a new Corporate nese National Railways (JNR) and in order to ensure the Philosophy, which expresses its vision and its sense of values convenience of passengers and otherwise, shall issue guide- as a company, and a new Safety Charter, which defines its lines relating to items that need to be considered for the time fundamental safety policies. It has since implemented a series being with respect to the management by the JR passenger of measures to realize this Corporate Philosophy and Safety railway companies in Honshu and any operators that run all or Charter. In February 2018, the Company formulated the “JR part of their railway business as a result of assignations, merg- West Group Railway Safety Think-and-Act Plan 2022”, aiming ers, divisions, or successions on or after the date of enact- to further improve safety levels, and have begun initiatives to ment, as designated by MLIT (hereinafter, “new companies”). prevent serious accidents and work-related injuries and The guidelines’ stipulations are outlined in the three points deaths. The Company is also working to establish a safety below. Those guidelines were issued on November 7, 2001, management system in accordance with its “Railway Safety and applied on December 1, 2001. MLIT may advise and issue Management Manual,” created based on the revised Railway instructions to any new companies to ensure operational man- Business Act, which came into effect in 2006. agement in accordance with those guidelines. Moreover, the Amended JR Law enables MLIT to issue recommendations 2 Relating to Legal Matters in Railway and directives in the event that its operational management Operations runs counter to the guidelines without any justifiable reason. 1. The Railway Business Law (1986, Law No. 92) Under the Railway Business Law, railway operators are The Guidelines’ Stipulated Items: required to obtain the permission of the Ministry of Land, Infra- (a) Items relating to ensuring alliances and cooperation among structure, Transport and Tourism (hereinafter, “MLIT”) for each companies (among new companies or among any new type of line and railway business operated (Article 3). Railway company and , Rail- operators are also required to receive approval from MLIT for way Company, , and Japan the upper limits of passenger fares and specified surcharges. Freight Railway Company) with respect to the establish- Subject to prior notification, railway operators can then set or ment of appropriate passenger fares and surcharges, the change these fares and surcharges within those upper limits unhindered utilization of railway facilities, and other factors (Article 16). Railway operators are also required to give MLIT relating to railway operations among those companies advance notice of the elimination or suspension of railway (b) Items relating to the appropriate maintenance of railway operations. In the case of eliminating operations, the notice routes currently in operation, reflecting trends in transporta- must be given at least one year in advance (Articles 28 and tion demand and other changes in circumstances following 28-2). the restructuring of JNR and items relating to ensuring the convenience of users through the development of stations and other railway facilities (c) Items relating to consideration that new companies should

54 WEST JAPAN RAILWAY COMPANY give to the avoidance of actions that inappropriately obstruct Also, regarding all bonds issued by the JR passenger railway business activities or unduly hamper the interests of small companies in Honshu prior to the Amended JR Law’s date of and medium-sized companies operating businesses within enactment, transitional measures are stipulated, such as the the operational areas of the new companies that are similar continuance following the date of enactment of the stipulation to the businesses of the new companies of general security in Article 4 of the JR Law.

3 Relating to Establishment of and Changes to Fares and Surcharges 1. System and Procedure for Approval of Fares and Surcharges The Railway Business Law stipulates that railway operators or change fares and surcharges within those upper limits, as are required to obtain the approval of MLIT when setting or well as limited express surcharges on conventional lines and changing the upper limits of passenger fares and Shinkansen other charges (Railway Business Law, Article 16, Items 3 and 4). limited express surcharges (hereinafter, “fares and surcharges”) Based on recent examples set by major private sector rail- (Railway Business Law, Article 16, Item 1). way operators, the process of applying and receiving approval Subject to prior notification, railway operators can then set to change fares from MLIT is as follows.

Ministry of Land, Ministry of Land, Infrastructure, Railway Infrastructure, Cabinet Transport operator Transport and Tourism Council for Transportation Secretariat and Tourism Railway operator Inquiry Announcement Application Processing Deliberation Response Meeting of Approval Implementation (Note 1) relevant (Note 2) Consumer Affairs Agency ministries regarding price-related Conference Debate issues

Notes: 1. This procedure is pursuant to Article 64, Item 2, of the Railway Operation Act. Further, in accordance with Article 23 of the Act for Establishment of the Ministry of Land, Infrastructure, Transport and Tourism (1999, Law No. 100), a press conference must be held in cases when deliberation by the Council for Transportation is required or when directions are received from the Minister of MLIT. 2. Paragraph 2, Article 3 of the Railway Operation Act stipulates that at least 7 days public notice must be given for any increment in fares or other conditions of transportation. Moreover, in order to improve the convenience of users when reforming national railways, a system is currently in place under which the total fares or other costs associated with customers or cargo traveling between two or more transportation providers can be decided based on contracts between the companies involved. This system generally allows for lower fares for longer travel distances. Furthermore, this system does not interfere with transportation providers’ ability to establish their own pricing systems.

2. JR-West’s Stance on Fare Revisions 3. Stance of the Ministry of Land, Infrastructure, (a) JR-West has not raised fares since its establishment in April Transport and Tourism 1987, other than to reflect the consumption tax introduc- With respect to the implementation of fare revisions by JR-West, tion (April 1989) and subsequent revision (April 1997 and the position of MLIT is as follows: April 2014). (a) MLIT will approve applications for the revision of the upper Major private sector railway operators apply for fare revi- limits of fares from railway operators, including JR-West, upon sions, if, following a comprehensive management judgment conducting inspections to determine that the fares do not that takes into account the operations of ancillary depart- exceed the sum of reasonable costs and fair profits, based on ments, they anticipate they will record a loss in after-tax net the efficient management of those companies (“total cost”) income in its railway operations. In the majority of cases, the (Railway Business Law, Article 16, Item 2). In addition, a three- revisions are implemented once the above-described pro- year period is stipulated for the calculation of costs. cedures have been completed. In the case of the Company, (b) Even if the railway operator has non-railway businesses, the revenues obtained from ancillary departments constitute a calculation of total cost, which comprises reasonable costs small percentage of its total revenues, and based on this it and fair profits, including required dividend payments to its considers the timely implementation of fare revisions to be a shareholders, is based only on the operator’s railway oper- necessary measure to secure a fair level of profit. ations. Further, railway operators are required to submit (b) The Company strives to promote efficient business man- their capital expenditure plans for increasing transportation agement to secure profits and to advance measures toward services to ease congestion of commuter services and for rationalization. However, the Company considers that the other improvements in passenger services. Upon inspec- fair level of profit should be at a level that enables it to fund tions, the capital cost necessary for such enhancements dividend payments to its shareholders, future capital invest- may be approved for the calculation of total cost. ment, and measures to strengthen its financial structure, on (c) Total cost is calculated using a “rate base method” that the assumption that it makes such efforts. estimates the capital cost (interest payments, dividend pay- (c) The Company recognizes the need to proactively manage ments, and other financial costs) arising from the provision capital expenditures, which have a substantial impact on the of a fair and appropriate return, based on the opportunity cost structure of its railway operations, based upon its clearly cost concept, to the capital invested in the railway opera- defined management responsibility. tions. The calculation of total cost is as follows: Total cost = Operating cost (Note 1) + Operational return

Annual Report 2018 55 Financial Section Operational and Other Risk Information

• Operational return = Assets utilized in railway business oper- Kanazawa–Tsuruga), the Line (between ations (rate base) × Operational return rate Shin-Hakodate-–), and the Kyushu Shinkansen • Assets utilized in railway business operations = Railway busi- Line (the Nagasaki route between Takeo Onsen–Nagasaki). ness operations fixed assets + Construction in progress + Deferred assets + Working capital (Note 2) Creation of the Development Scheme • Operational return rate = Equity ratio (Note 3) × Return rate on • August 1988 equity (Note 4) + Borrowed capital ratio (Note 3) × Return rate (arrangement between the national government and ruling on borrowed capital (Note 4) parties) Ruling on the start of construction according to a priority sequence and development standards for five seg- Notes: 1. With respect to comparable costs among railway operators, in order to promote enhanced management efficiency, a “yardstick formula” is used to encourage indirect competition ments of three Shinkansen lines among respective operators. The results of those comparisons are issued at the end of every business year and form the basis for the calculation of costs. • December 1990 2. Working capital = Operating costs and certain stores (arrangement between the national government and ruling 3. Equity ratio, 30%; Borrowed capital ratio, 70% 4. Return rate on equity is based on the average of yields to subscribers of public and parties) Ruling on a management separation for JR compa- corporate bonds, the overall industrial average return rate on equity, and the dividend yield ratio. Return rate on borrowed capital is based on the average actual rate on loans and nies of the conventional lines running parallel with the new other liabilities. Shinkansen lines • December 1996 (d) Subject to prior notification to MLIT, railway operators can (agreement between the national government and ruling set or change fares and surcharges or other charges within parties) Ruling that the cost burden by JR companies would the upper limits approved. However, MLIT can issue direc- be usage fees and other charges within the range of their tives requiring changes in fares and surcharges by specify- expected benefits ing the date, if the fares and surcharges submitted are • December 2000 deemed to fall within the following categories (Railway (arrangement between the national government and ruling Business Law, Article 16, Item 5): parties) Ruling on new segments for start of construction, • The setting or change would lead to unjustifiable discrimina- and reviews of development standards and periods tion in the treatment of certain passengers. • December 2004 • There is concern that the setting or change would give rise (arrangement between the national government and ruling to unfair competition with other railway operators. parties) Ruling on new segments for start of construction, and reviews of development standards and periods 4 Relating to Plan for the Development of New • December 2011 Shinkansen Lines (items confirmed by the national government and ruling par- 1. Construction Plans for New Shinkansen Lines ties) Confirmation of future policies regarding the develop- The new Shinkansen lines are the five lines indicated in the plan ment of Shinkansen lines for the Shinkansen line network that was decided pursuant to Details of the items confirmed by the national government the 1970 Nationwide Shinkansen Railway Development Law, and ruling parties regarding the Hokuriku Shinkansen Line namely the Hokuriku Shinkansen Line (Tokyo–Osaka), the Hok- in December 2011 kaido Shinkansen Line (Aomori–Sapporo), the Tohoku Shinkan- For new segments of track, construction is to begin after sen Line (Morioka–Aomori), the Kyushu Shinkansen Line (the necessary approval procedures have been conducted for Kagoshima route between Fukuoka–Kagoshima), and the segments for which profitability and investment effective- Kyushu Shinkansen Line (the Nagasaki route between Fukuoka– ness have been reconfirmed and for which the conditions Nagasaki). Of these lines, the Company is the operator of the outlined below have been met and issues (see notes Joetsu–Osaka segment of the Hokuriku Shinkansen Line. below) have been addressed. Construction of the five lines had been postponed due to deteriorating management conditions at JNR. However, the Segment Conditions to be met Scheduled completion / development scheme described below was created to solve the before approval / start of operation financial and other problems after the inauguration of JR com- construction panies, and construction has progressed on a sequential basis. Between Hakusan • Approval by JR-West Over 10 years from start car maintenance • Approval by municipal of services between Until the present time, operations have commenced on the center–Tsuruga governments bordering Nagano–Hakusan car Hokuriku Shinkansen Line (between Nagano–Kanazawa), the tracks with regard to maintenance center (end separate management of fiscal 2015) Tohoku Shinkansen Line (between Morioka–Shin-Aomori), the of parallel conventional Kyushu Shinkansen Line (between Hakata–Kagoshima-Chuo), lines

and the Hokkaido Shinkansen Line (between Shin-Aomori– Notes: Network development west of Tsuruga will be conducted based on the following policies. • Due to financial limitations, it will be difficult to develop such a network prior to the Shin-Hakodate-Hokuto). Currently, the construction contractor, completion of the three segments currently under way due to financial limitations. However, as the opening of lines extending to Tsuruga will increase connection points to main lines, Japan Railway Construction, Transport and Technology Agency we are considering the development of a network connecting the Kanto and Kansai regions (JRTT), is advancing construction on the following sections through Hokuriku. • Measures to prevent reduced passenger convenience stemming from the need to change of the three lines: the Hokuriku Shinkansen Line (between trains at Tsuruga will be considered based on the opinions of JR-West and relevant municipal governments.

56 WEST JAPAN RAILWAY COMPANY • January 2015 JR-West as payments for the purchase of existing Shinkansen (arrangement between the national government and ruling lines, shall be considered to be part of the cost burden borne parties) Confirmation of future policies regarding the devel- by the national government. opment of Shinkansen lines According to Article 6 of the Law on the Japan Railway Details of the arrangement made by the national govern- Construction, Transport and Technology Agency, the loan ment and ruling parties regarding the Hokuriku Shinkansen fees paid by Shinkansen line operators, the JR companies, to Line in January 2015 the JRTT comprise a fixed amount calculated on the basis of The Hokuriku Shinkansen Line (between Kanazawa– the income obtained by operators for the use of those Shink- Tsuruga) will aim for completion and opening by the end of ansen lines after they commence operations (a fixed amount) fiscal 2023, which is three years ahead of the initial plan of plus an amount for taxes paid by JRTT in relation to the bor- fiscal 2026. rowing of railway properties and JRTT’s management expenses. The fixed portion of the loan fees for the Joetsu Construction and Opening of the Hokuriku Shinkansen Myoko–Kanazawa section of the Hokuriku Shinkansen Line Line within the Company’s Area of Operations is calculated by JRTT at ¥8.0 billion per year. The Company • August 1992 has determined that this amount is reasonable, taking into Between Isurugi–Kanazawa (24 km): Construction com- consideration the extent of JR-West’s benefits from the menced as a Shinkansen Railway Standard New Line (Super opening of this Shinkansen line. Accordingly, the Company Express) entered into an agreement with JRTT and received approval • April 2001 for this amount of loan fees from the Ministry of Land, Infra- Between Joetsu–Toyama (110 km): Construction com- structure, Transport and Tourism (MLIT) in March 2015. For menced at full standard (Prior to this, in September 1993 segments planned to be opened in the future, loan fees will construction had commenced on the segment between be determined in the same manner, based on agreements Itoigawa–Kurobe-Unazukionsen as a Shinkansen Railway between JR-West and JRTT. Standard New Line [Super Express], and at this point in time was changed to full standard.) 3. The Company’s Stance on the Hokuriku • April 2005 Shinkansen Line Between Toyama–Kanazawa (59 km): Construction commenced Based on the items confirmed by the national government and at full standard (Prior to this, in August 1992 construction had ruling parties in December 2011, MLIT confirmed the intentions commenced on the segment between Isurugi–Kanazawa as a to the Company regarding agreement for commencement of Shinkansen Railway Standard New Line [Super Express], and construction of the segment between the Hakusan car mainte- at this point in time was changed to full standard.) nance center and Tsuruga and our plans to introduce gauge Fukui Station segment: Construction commenced change trains (GCTs) on track segments and conduct direct ser- • April 2006 vices between Shinkansen and conventional lines in the future. Hakusan car maintenance center: Construction commenced As the establishment of Shinkansen lines should create • June 2012 significant reductions in travel time, we feel it would be most Hakusan car maintenance center–Tsuruga segment (114 beneficial to start services on all lines running to Osaka at an km): Construction commenced early stage. However, for the time being, we have informed • March 2015 MLIT that as of April 2012 an agreement for commencement Nagano–Kanazawa segment opened of construction of the segment between the Hakusan car maintenance center and Tsuruga has been reached and that 2. Cost Burden of the Development of there were also no objections to the plan to operate GCTs. New Shinkansen Lines This decision was reached in consideration of the uniform Regarding the construction cost for the development of new travel time reductions expected despite only extending lines to Shinkansen lines, based on the agreement in December 1996 Tsuruga, which connects the Kansai and Chukyo regions with between the national government and the ruling parties, in Hokuriku, and the increased convenience achieved by elimi- 1997 the Nationwide Shinkansen Railway Development Law nating the need to change trains at Tsuruga through the use of and related laws were revised to stipulate that “the national GCTs. Furthermore, in introducing GCTs, we realize that it will government, local governments, and JR passenger railway be of the utmost importance to take steps to ensure the safety, companies would assume the cost of new Shinkansen lines,” durability, and maintainability of the trains, and also develop and that “the cost burden by JR passenger railway companies measures to address snow. which mainly operate on new Shinkansen lines shall be paid As per the January 2015 government and ruling party out of their usage fees and other charges, with the upper limit agreement, the Hokuriku Shinkansen Line (between Kanazawa– to be determined by the range of expected benefits.” Tsuruga) will aim for completion and opening by the end of Also, those subsidies from the JRTT, of which part of its fiscal 2023, which is three years ahead of the initial plan of financial resource is provided by JR-East, JR-Central, and fiscal 2026. JR-West believes that solid forward progress will

Annual Report 2018 57 Financial Section Operational and Other Risk Information

be made toward the opening of the entire segment up to 6 Relating to Competition Osaka. However, due to a lack of time to complete develop- 1. Railway Operations ment of GCTs set to be introduced in fiscal 2026, the GCTs for The railway operations of the JR-West Group compete with the the opening of the line between Kanazawa–Tsuruga will not be operations of other railway companies, airline companies, and completed in time for this new deadline of fiscal 2023. alternative modes of transportation such as buses or automo- On the other hand, MLIT approved the construction plan biles. In addition, its performance is affected by conditions in the for the Hokuriku Shinkansen between Kanazawa and Tsuruga Japanese economy, particularly economic trends in its main in October 2017 (part 2). Since receiving approval, work has area of operations, western Japan. As a result, competition begun on construction of platforms to facilitate more convenient trends and economic conditions in the future may have an effect transfers between the Shinkansen and conventional railways. on the Group’s financial condition and results of operations. As a company that is a heading this project, we will make In particular, the Company faces extremely severe compe- efforts to utilize these platforms to enable smooth transfers. tition from airline companies stemming from the improved Regarding the route westward from Tsuruga, based on the convenience of flying due to factors such as the increased conclusions of a ruling party project team for promoting con- number of flights and lower airfares. The Company has made struction of new Shinkansen lines in March 2017, a detailed improvements to the Shinkansen, introducing a new auto- survey is being conducted on the Obama–Kyoto route (Tsuruga matic train control (ATC) system on the Sanyo Line, which Station– Obama vicinity (Higashi Obama)–Kyoto Station–Kyota- shortens travel time and improves rider comfort, and has been nabe vicinity (Matsui Yamate)–Shin-Osaka Station), and we will working to improve convenience by increasing service of the continue to pay careful attention to the contents of this survey. Mizuho trains, and providing fully online reservation options, Even if segments to undergo construction are extended such as Smart-EX and the “e5489” services. In terms of the with the aim of starting services on all lines, the Company con- Urban Network, the Company faces competition with other siders it essential that the previous fundamental principles railway operators and modes of travel. To address this issue, should be protected, namely that “the burden of the Company we have increased the number of trains during peak hours in shall be within the limit of expected benefits” and that “there is addition to running an all-day, 12-car formation, promoting use clear separation between the management of JR-West’s con- though improved comfort and convenience. ventional lines and the new Shinkansen line segments that are In addition, the Company has been heightening the conve- running parallel.” nience for railway passengers by continuing to install barri- er-free facilities, including elevators and escalators. Moving 5 Relating to Changing Population Dynamics, forward, we will enhance the competitiveness of the Shinkan- such as the Declining Birthrate and Aging sen through flexible pricing and special perks for frequent Population users. In addition, we will promote the use of IC cards by According to “Population Projections for Japan (birth rate improving their convenience through means such as the intro- medium variant and death rate medium variant estimates),” duction of ICOCA points. published by the National Institute of Population and Social Security Research in April 2017, Japan’s total population of 2. Non-Railway Operations 127.09 million people in 2015 was set to enter a long-standing The JR-West Group carries out non-railway operations, princi- depopulation process, and by 2053 was projected to fall below pally retail business, real estate business, and other busi- 100.00 million people, to 99.24 million people. The working-age nesses (including hotel business). Non-railway operations are population (15 to 64) peaked in 1995 at 87.26 million people, affected by conditions in the Japanese economy, particularly and subsequently entered a depopulation phase. By 2015, it economic trends in the Group’s main area of operations, west- had fallen to 77.28 million people, and by 2029 it is forecast to ern Japan. Therefore, economic conditions in the future may decrease to 69.50 million people. In contrast, the old-age pop- have an effect on the Group’s financial condition and results of ulation (65 and over), which was 33.86 million people in 2015, is operations. In addition, its non-railway operations are faced projected to increase to 36.99 million people by 2029. with an increasingly severe competitive environment: in retail The JR-West Group’s main area of operations is western business, due to the opening of retail stores by competitors in Japan, where it operates businesses that include railway, retail, areas surrounding its shops; in real estate, due to the entry of real estate, and hotel operations. Depopulation and the declin- new competitors and the upgrade of competitors’ commercial ing birthrate and aging population trends are forecast to con- facilities in surrounding areas; and in other businesses, due to tinue in this region. If the depopulation, declining birthrate, and increased competition with existing and new competitors in aging population processes take place as projected, in the hotel operations, such as the openings of foreign-affiliated lux- long term, due to a decrease in the number of passengers and ury hotels or low-end budget hotels by Japanese companies. customers at the Group’s facilities and stores, this may have These factors may have an effect on the Group’s revenues. an effect on the Group’s business results. This may also impact However, as the Group mainly develops its operations in the Group’s ability to secure the human resources that support stations and the areas surrounding them, it can be considered its business operations. to possess competitive advantages in terms of advanta-

58 WEST JAPAN RAILWAY COMPANY geous locations. second-type railway operations and Osaka Soto-Kanjo Rail- The Group aims to improve the value of its railway belts and way Co., Ltd. for third-type railway operations the local community through providing high-quality goods and • February 1999 services that meet the expectations of both passengers and Approval to carry out construction (Miyakojima–Kyuhoji) those active in the vicinity of railways, as well as through the • December 2002 creation and cultivation of local businesses. In doing so, it aims Approval to carry out construction (Shin-Osaka–Miyakojima) to expand the visitor population and the resident population. • February 2005 Approval to extend the deadline to complete construction 7 Relating to Long-Term Debt and Payables (Shin-Osaka–Kyuhoji) On its establishment in 1987 and based on the Japanese • August 2007 National Railways Reform Law (1986, Law No. 87), the Com- Resolution on the names of the line and stations (5 stations to pany inherited ¥1,015.8 billion of long-term debt from JNR. be opened in the spring of 2008) Further, on October 1, 1991, based on the Law Relating to • March 2008 the Transfer of Shinkansen Line Railway Facilities (1991, Law Start of operations between Hanaten–Kyuhoji No. 45), the Company purchased the Sanyo Shinkansen Line • September 2009 railway facilities (excluding rolling stock) at the cost of ¥974.1 Approval to extend the deadline to complete construction billion from the Shinkansen Holding Corporation. Through (Shin-Osaka–Hanaten) contracts with the Shinkansen Holding Corporation, of the • July 2013 transfer value, ¥859.1 billion is to be paid over 25.5 years and Approval to change the basic business plan with regard to ¥114.9 billion over 60 years by half-yearly installment pay- new station openings (between JR Nagase and Shin-Kami) ments of equal amounts of principal and interest to the Rail- • March 2018 way Development Fund (presently, the Japan Railway JR-West opened Kizuri-Kamikita station, operating between Construction, Transport and Technology Agency), and the JR-Nagase and Shin-Kami station. unpaid balance is to be recorded as long-term payables to the acquisition of railway properties. Of the transfer value, the 2. Outline of the Plan repayment of ¥859.1 billion was completed in January 2017. (a) Main construction contractor: Osaka Soto-Kanjo Railway Consolidated long-term debt at March 31, 2018, stood at Co., Ltd. (third-type railway operator) ¥1,032.2 billion (including the current portion thereof), or 0.5% (b) Main operator: West Japan Railway Company lower than the previous fiscal year. Interest payments for the (second-type railway operator) fiscal years ended March 31, 2016, 2017, and 2018, were (c) Planned line: Between Shin-Osaka Station, Tokaido Main ¥24.1 billion, ¥22.3 billion, and ¥20.9 billion, respectively. Line and Kyuhoji Station, length: 20.3 km The Group will continue to pay close attention to its levels of (d) No. of stations: 14 (including Shin-Osaka and Kyuhoji stations) long-term debt, payables, and interest payments in order to (e) Total construction cost: Approx. ¥120 billion (excluding new maintain management stability. However, a reduction in free stations) cash flow due to unforeseen circumstances could affect the ( f ) Planned construction period: Fiscal 1998 to fiscal 2019 JR-West Group’s financial condition and results of operations. (Segment between Hanaten–Kyuhoji completed in fiscal 2008) 8 Relating to Major Projects (Osaka Higashi Line) 1. Details and Current Status 3. JR-West’s Stance • April 1981 This line is to reciprocally connect radial railway lines on the Approval from Transport Minister based on the Japanese outskirts of Osaka by utilizing the between National Railways Law Hanaten–Yao and Shigino–Suita (commonly known as the Joto • April 1987 Freight Line), which is currently used as a freight line. The line is Establishment of West Japan Railway Company, which expected to contribute to the development of the . inherited the above-described approval In addition to contributing to the development of the areas adja- • May 1996 cent to the railway line, it will also assist with the redevelopment In the government budget for fiscal 1997, the project was of the areas to the east of Osaka—such as the Awaji District and approved to receive funding identified in “Supplementary the Hanaten/Ryuge District—and in the creation of a multiple-type Funding for Operational Expenses for the Revitalization of railway network designed to withstand natural disasters. How- Arterial Railroads” ever, if the plan does not progress as forecast due to various • November 1996 changes in the operating environment or the anticipated benefits Establishment of quasi-public company Osaka Soto-Kanjo may not be obtained, this may have an effect on the Company’s Railway Co., Ltd. financial condition and results of operations. • December 1996 West Japan Railway Company acquired a license for

Annual Report 2018 59 Financial Section Operational and Other Risk Information

9 Relating to Computer Systems Himeji stations, and are moving forward with installation along the Computer systems play a vital role in the JR-West Group’s segment between Himeji and Hakata. operations, and they are utilized not only in its railway operations Meanwhile, in recent years there has been a sharp increase and for sales of reserved seats, but also in many other areas in damages from torrential rainfall that occurs locally over a throughout the Group’s operations. Accordingly, if a problem short period of time. Therefore, in March 2015 partial revisions should occur with these computer systems through a human were made to regulatory values and rainfall indicators in our error, a natural disaster, a power failure, a computer virus, or operating regulations during rainfall on conventional lines in other reasons, it may have an impact on the Group’s ability to consideration of the changes in rainfall types in recent years carry out operations in the area where the problem occurred. and past damages caused by rainfall. Further, if personal or other information should leak outside The Company is also developing other measures to pre- the Group because of a computer virus infection or an errone- vent, to the greatest possible extent, serious damage to the ous operation of computer systems, it may cause stakeholders Group’s operations due to occurrences such as heavy rainfall to lose trust in the Group, which in turn may have an effect on and landslides. the Group’s financial condition and results of operations. As another measure in response to natural disasters and The Group constantly strives to prevent computer sys- other events, the Company has established a commitment line tem-related problems or accidents from occurring through with financial institutions that enables it to raise capital accord- regular system inspections, measures to improve system ing to predetermined conditions even if an earthquake should functionality, and employee training. It has also been working occur. Moreover, it has also acquired damage insurance inclu- to minimize the impact on operations should a problem or sive of earthquake insurance for its main railway facilities. accident occur, including the development of a rapid first However, these countermeasures may be unable to entirely motion system. Furthermore, in response to its increased compensate for all the damage incurred due to an earthquake dependence on IT, the Company has strengthened and revised or other natural disaster. the facilities and infrastructure used to maintain the stable Further, in addition to such direct damages caused by natu- operation of its computer systems and is systematically insti- ral disasters as those mentioned above, there is the possibility tuting natural disaster countermeasures. that a major natural disaster could cause electricity shortages or other such issues, which may subsequently affect the Group’s 10 Relating to Natural Disasters railway and other operations. It is possible that the JR-West Group’s operations or transpor- tation network infrastructure will suffer considerable damage 11 Relating to an Infectious Disease Outbreak due to a natural disaster, such as an earthquake, typhoon, and Epidemic landslide, or flood, or due to a terrorist attack. For example, If a long-term infectious disease epidemic should occur in the Hanshin-Awaji (Kobe) Earthquake that occurred in January western Japan, such as Severe Acute Respiratory Syndrome 1995 caused substantial damage to the railway network, par- (SARS), which saw an outbreak in 2003, or the extremely dan- ticularly to the Sanyo Shinkansen Line and . gerous swine influenza virus, it is feared that this would have The Company is working hard in terms of disaster prepared- impacts such as limiting economic activities and causing pas- ness and disaster reduction measures to minimize damages sengers to refrain from taking trips. There is a danger that such caused by serious natural disasters in the future that will impact an epidemic—if it entails the infection of a significant portion of its business. Specifically, the Company has rolled out earthquake the Company’s workforce—may temporarily cause the early detection and warning systems for across all Shinkansen JR-West Group to be unable to continue its operations, partic- and earthquake emergency news flash systems that also include ularly its railway operations. Such a situation may have an conventional lines. The Company is steadily carrying out earth- impact on the Group’s results of operations. quake resistance reinforcement work on its elevated tracks and The Group is taking necessary measures to provide appro- station buildings, bridges, and support pillars to prepare for an priate levels of transportation during an outbreak of pandemic earthquake in the Nankai Trough, which is expected to occur in influenza, while working closely with government-affiliated the future. The Company is also making efforts to facilitate speedy institutions and local governments, in accordance with the Act evacuations in case of a tsunami, which include practical drills, on Special Measures for Preparedness and Response against publication of the Tsunami Evacuation Guidance Manual, and Pandemic Influenza and New Infectious Disease enacted in installation of evacuation route signage. Furthermore, based on April 2013. the derailment of the Shinkansen during the Mid- Prefec- ture Earthquake in October 2004, the Shinkansen Derailment 12 Relating to Compliance Countermeasures Committee was set up by the government to The Company, in conducting its business activities, is subject to review earthquake countermeasures for the Shinkansen and pro- the Companies Act of Japan, the Financial Instruments and mote the development of related technologies. In response, in Exchange Law, the Act on Prohibition of Private Monopolization December 2015 we completed installation of derailment preven- and Maintenance of Fair Trade, the Act on the Protection of Per- tion guards on the Sanyo Shinkansen between Shin-Osaka and sonal Information, and other generally applicable laws and

60 WEST JAPAN RAILWAY COMPANY ordinances, as well as the Railway Business Law and other laws The Company will further increase its efforts to earnestly and ordinances applicable to the relevant business category listen to the opinions of the victims of the accident. and the supervision of the relevant regulatory authorities accord- The Company will continue to make compensation pay- ing to the types of business. If the Company contravenes such ments and other payments relating to the accident. At the statutory regulations or is subject to investigations by such reg- present point in time, it is difficult to make a rational estimate of ulatory authorities or in some situations, to any sanction, the what the total amount of these payments will be. public’s trust of the JR-West Group may be undermined and, moreover, costs may be incurred to take measures to address the situation. Such a situation may have an impact on the Group’s results of operations. In September 2009, with regard to a grave issue concern- ing compliance that had arisen in the investigation of the Fukuchiyama Line accident by the Aircraft and Railway Acci- dents Investigation Commission, the Company was ordered by MLIT to conduct fact-finding inquiries, implement remedia- tion measures, including preventive measures based on the results of such inquiries, and make a report thereof. In November 2009, the Company submitted to MLIT the results of the fact-finding inquiries and remediation measures, including preventive measures, obtained from both the Special Committee on Compliance—a body comprising third-party experts—and its own internal team reporting to the President. The Company has also implemented measures to prevent a recurrence of similar problems and to strengthen its compliance system. Specifically, the Company has established the Corporate Ethics & Risk Management Department to integrate its functions to promote compliance and the Corporate Ethics Committee to promote good corporate ethics. The Company has also estab- lished the Ethics Office and the Public Interest Information Office to offer advice and to act as contact points regarding compliance issues. In addition, a third-party consultation office has been established for the use of JR-West Group officers and employees who wish to discuss compliance-related matters. The Company is also taking active steps to improve corporate ethics education for employees. In December 2010, the Company submitted a report to MLIT detailing the status of implementation of these and other remediation measures. Furthermore, in February 2012 the Corporate Ethics Committee compiled a report based on the dis- cussions conducted and the subsequent advice received to date. We aim to incorporate the proposals made in this report into our compliance initiatives. Also, with the diversification of risks, JR-West strengthened its risk management structure with the establishment of a Risk Management Committee in April 2017, in order to provide the president and other persons in positions of responsibility with a proper understanding of the risks that have a critical impact on corporate group management, as well as to establish a risk management style of unified risk management and efforts to mitigate such risks.

13 Relating to the Fukuchiyama Line Accident On April 25, 2005, an extremely serious accident occurred on the Fukuchiyama Line between Tsukaguchi and Amagasaki stations in which 106 passengers lost their lives and more than 500 were injured.

Annual Report 2018 61 Financial Section Consolidated Balance Sheet

West Japan Railway Company and its consolidated subsidiaries As of March 31, 2018 and 2017

Millions of yen Millions of U.S. dollars* 2018 2017 2018 Assets Current assets: Cash and deposits ¥ 82,995 ¥ 63,578 $ 782 Short-term investments 18,700 — 176 Notes and accounts receivable: Unconsolidated subsidiaries and affiliates 820 774 7 Trade 144,291 131,714 1,361 Less allowance for doubtful accounts (815) (837) (7) Inventories 101,258 82,802 955 Income taxes refundable — 13 — Deferred income taxes 19,547 17,582 184 Prepaid expenses and other current assets 52,291 56,237 493 Total current assets 419,089 351,864 3,953

Investments: Unconsolidated subsidiaries and affiliates 59,943 55,907 565 Other securities 26,873 24,559 253 Total investments 86,817 80,467 819

Property, plant and equipment, at cost: Land 758,987 754,274 7,160 Buildings and structures 3,313,924 3,275,914 31,263 Machinery, equipment and vehicles 1,503,517 1,476,976 14,184 Tools, furniture and fixtures 146,311 140,741 1,380 Construction in progress 73,063 54,129 689 5,795,803 5,702,036 54,677 Less accumulated depreciation (3,431,266) (3,341,972) (32,370) Property, plant and equipment, net 2,364,537 2,360,063 22,306

Deferred income taxes 123,648 130,777 1,166 Asset for retirement benefits 1,868 1,505 17 Other assets 77,004 83,174 726

Total assets ¥ 3,072,965 ¥ 3,007,852 $ 28,990

* Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018.

62 WEST JAPAN RAILWAY COMPANY Millions of yen Millions of U.S. dollars* 2018 2017 2018 Liabilities and net assets Current liabilities: Short-term loans ¥ 17,252 ¥ 15,908 $ 162 Current portion of long-term debt 59,830 82,354 564 Current portion of long-term payables 1,580 1,512 14 Notes and accounts payable: Unconsolidated subsidiaries and affiliates 2,433 2,556 22 Trade 157,381 149,271 1,484 Prepaid railway fares received 38,860 37,407 366 Deposits and advances received 125,213 102,428 1,181 Accrued expenses 38,357 35,457 361 Income taxes payable 25,295 19,194 238 Provision for employees’ bonuses 39,187 37,428 369 Provision for customer point programs 2,204 2,041 20 Deferred income taxes 37 — 0 Other current liabilities 22,693 59,708 214 Total current liabilities 530,327 545,270 5,003

Long-term debt 875,934 855,380 8,263 Long-term payables 104,375 105,957 984 Liability for retirement benefits 301,783 325,085 2,847 Provision for large-scale renovation of Shinkansen infrastructure 8,333 4,166 78 Provision for environmental safety measures 15,838 18,799 149 Provision for loss on railway line liquidation 10,170 11,457 95 Provision for unutilized gift tickets 2,414 2,575 22 Deferred income taxes 3,544 3,195 33 Other long-term liabilities 103,939 103,352 980 Total long-term liabilities 1,426,334 1,429,971 13,455

Contingent liabilities

Net assets: Shareholders’ equity: Common stock Authorized – 800,000,000 shares at March 31, 2018 and 2017 Issued and outstanding – 193,735,000 shares at March 31, 100,000 100,000 943 2018 and 2017 Capital surplus 56,171 55,068 529 Retained earnings 849,925 768,358 8,018 Less treasury stock, at cost – 129,808 and 129,899 shares at March 31, (481) (481) (4) 2018 and 2017 Total shareholders’ equity 1,005,615 922,945 9,486 Accumulated other comprehensive income: Net unrealized holding gain on securities 4,018 3,763 37 Net unrealized deferred gain on hedging instruments 83 188 0 Retirement benefits liability adjustments 11,242 13,538 106 Total accumulated other comprehensive income 15,344 17,491 144 Non-controlling interests 95,343 92,173 899 Total net assets 1,116,304 1,032,610 10,531 Total liabilities and net assets ¥3,072,965 ¥3,007,852 $28,990

* Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018.

Annual Report 2018 63 Financial Section Consolidated Statement of Profit or Loss

West Japan Railway Company and its consolidated subsidiaries Years ended March 31, 2018 and 2017

Millions of yen Millions of U.S. dollars* 2018 2017 2018 Operating revenues ¥1,500,445 ¥1,441,411 $14,155 Operating expenses: Transportation, other services and cost of sales 1,113,026 1,072,732 10,500 Selling, general and administrative expenses 196,052 192,287 1,849 1,309,079 1,265,019 12,349 Operating income 191,365 176,392 1,805 Other income (expenses): Interest and dividend income 703 650 6 Interest expense (20,906) (22,350) (197) Equity in earnings of affiliates 2,480 1,574 23 Provision for loss on railway line liquidation — (11,470) — Gain on contributions received for construction 25,533 14,649 240 Loss on deduction of contributions received for construction from acquisition (24,208) (13,858) (228) costs of property, plant and equipment Loss on impairment of property, plant and equipment (2,391) (5,114) (22) Gain on sales of property, plant and equipment 247 1,479 2 Loss on sales of property, plant and equipment (664) (401) (6) Other, net (1,480) (3,797) (13) (20,686) (38,637) (195) Profit before income taxes 170,679 137,754 1,610 Income taxes: Current 48,260 43,490 455 Deferred 6,400 739 60 54,661 44,230 515 Profit 116,018 93,524 1,094 Profit attributable to non-controlling interests 5,524 2,235 52 Profit attributable to owners of parent ¥ 110,493 ¥ 91,288 $ 1,042

* Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018.

64 WEST JAPAN RAILWAY COMPANY Consolidated Statement of Comprehensive Income

West Japan Railway Company and its consolidated subsidiaries Years ended March 31, 2018 and 2017

Millions of yen Millions of U.S. dollars* 2018 2017 2018 Profit ¥116,018 ¥93,524 $1,094 Other comprehensive income: Net unrealized holding gain on securities 305 249 2 Net unrealized deferred (loss) gain on hedging instruments (132) 389 (1) Retirement benefit liability adjustments (2,089) (2,072) (19) Other comprehensive income of affiliates accounted for by equity method attributable to owners of parent 70 5 0 Total other comprehensive loss (1,846) (1,427) (17) Total comprehensive income ¥114,171 ¥92,097 $1,077

Comprehensive income attributable to owners of parent and non-controlling interests for the years ended March 31, 2018 and 2017 are as follows:

Millions of yen Millions of U.S. dollars* 2018 2017 2018 Comprehensive income attributable to owners of parent ¥108,347 ¥89,692 $1,022 Comprehensive income attributable to non-controlling interests 5,824 2,405 54

* Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018.

Annual Report 2018 65 Financial Section Consolidated Statement of Changes in Net Assets

West Japan Railway Company and its consolidated subsidiaries Years ended March 31, 2018 and 2017

Millions of yen Net unrealized Total deferred gain Retirement accumulated Total Net unrealized (loss) on benefits other Non- Common Capital Retained Treasury shareholders’ holding gain hedging liability comprehensive controlling Total net stock surplus earnings stock, at cost equity on securities instruments adjustments income interests assets Balance at April 1, 2016 ¥100,000 ¥55,068 ¥704,187 ¥(481) ¥ 858,775 ¥3,523 ¥(121) ¥15,685 ¥19,087 ¥48,513 ¥ 926,376 Profit attributable to owners of parent — — 91,288 — 91,288 — — — — — 91,288 Cash dividends — — (27,122) — (27,122) — — — — — (27,122) Increase due to merger — — 5 — 5 — — — — — 5 Purchases of treasury stock — — — (0) (0) — — — — — (0) Net changes in items other than shareholders’ equity — — — — — 240 310 (2,146) (1,596) 43,659 42,063 Balance at April 1, 2017 ¥100,000 ¥55,068 ¥768,358 ¥(481) ¥ 922,945 ¥3,763 ¥ 188 ¥13,538 ¥17,491 ¥92,173 ¥1,032,610 Profit attributable to owners of parent — — 110,493 — 110,493 — — — — — 110,493 Cash dividends — — (29,060) — (29,060) — — — — — (29,060) Decrease in retained earnings resulting from change in number of consolidated subsidiaries — — (2) — (2) — — — — — (2) Increase due to merger — — 136 — 136 — — — — — 136 Cancellation of treasury stock — 0 — 0 0 — — — — — 0 Increase due to changes in equity in affiliates accounted for by equity method — — — 0 0 — — — — — 0 Purchases of shares of consolidated subsidiaries — 1,102 — — 1,102 — — — — — 1,102 Net changes in items other than shareholders’ equity — — — — — 255 (105) (2,296) (2,146) 3,169 1,023 Balance at March 31, 2018 ¥100,000 ¥56,171 ¥849,925 ¥(481) ¥1,005,615 ¥4,018 ¥ 83 ¥11,242 ¥15,344 ¥95,343 ¥1,116,304

Millions of U.S. dollars* Net unrealized Total deferred gain Retirement accumulated Total Net unrealized (loss) on benefits other Non- Common Capital Retained Treasury shareholders’ holding gain hedging liability comprehensive controlling Total net stock surplus earnings stock, at cost equity on securities instruments adjustments income interests assets Balance at April 1, 2017 $943 $519 $7,248 $(4) $8,707 $35 $1 $127 $165 $869 $ 9,741 Profit attributable to owners of parent — — 1,042 — 1,042 — — — — — 1,042 Cash dividends — — (274) — (274) — — — — — (274) Decrease in retained earnings resulting from change in number of consolidated subsidiaries — — (0) — (0) — — — — — (0) Increase due to merger — — 1 — 1 — — — — — 1 Cancellation of treasury stock — 0 — 0 0 — — — — — 0 Increase due to changes in equity in affiliates accounted for by equity method — — — 0 0 — — — — — 0 Purchase of shares of consolidated subsidiaries — 10 — — 10 — — — — — 10 Net changes in items other than shareholders’ equity — — — — — 2 0 (21) (20) 29 9 Balance at March 31, 2018 $943 $529 $8,018 $(4) $9,486 $37 $0 $106 $144 $899 $10,531

* Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018.

66 WEST JAPAN RAILWAY COMPANY Consolidated Statement of Cash Flows

West Japan Railway Company and its consolidated subsidiaries Years ended March 31, 2018 and 2017

Millions of yen Millions of U.S. dollars* 2018 2017 2018 Cash flows from operating activities Profit before income taxes ¥ 170,679 ¥ 137,754 $ 1,610 Adjustments for: Depreciation and amortization 163,562 162,729 1,543 Loss on impairment of property, plant and equipment 2,391 5,114 22 Loss on deduction of contributions received for construction from acquisition costs of property, plant and equipment 24,208 13,858 228 Loss on disposal of property, plant and equipment 5,506 7,335 51 Decrease in liability for retirement benefits (26,528) (20,123) (250) Increase in allowance for doubtful accounts 1,705 167 16 Increase (decrease) in provision for employees’ bonuses 1,755 (351) 16 Increase in provision for large-scale renovation of Shinkansen infrastructure 4,166 4,166 39 (Decrease) increase in other accruals (4,366) 9,305 (41) Interest and dividend income (703) (650) (6) Interest expense 20,906 22,350 197 Equity in earnings of affiliates (2,480) (1,574) (23) Gain on contributions received for construction (25,533) (14,649) (240) (Increase) decrease in notes and accounts receivable (12,282) 2,155 (115) Increase in inventories (15,736) (1,131) (148) Increase (decrease) in notes and accounts payable 23,440 (23,044) 221 (Decrease) increase in accrued consumption taxes (366) 653 (3) Other 7,213 8,935 68 Subtotal 337,540 313,002 3,184 Interest and dividend received 700 625 6 Interest paid (20,663) (22,573) (194) Income taxes paid (42,475) (56,908) (400) Net cash provided by operating activities 275,101 234,144 2,595

Cash flows from investing activities Payments for time deposits with a maturity in excess of three months (231) (231) (2) Proceeds from time deposits with a maturity in excess of three months 231 266 2 Purchases of property, plant and equipment (201,705) (208,832) (1,902) Proceeds from sales of property, plant and equipment 2,239 1,044 21 Contributions received for construction 36,391 22,728 343 Purchases of investments in securities (4,604) (9,985) (43) Proceeds from sales of investments in securities 631 930 5 Purchase of shares of subsidiary resulting in change in scope of consolidation — (93,714) — Net decrease (increase) in loans receivable 3,083 (5,766) 29 Other (2,388) (2,248) (22) Net cash used in investing activities (166,352) (295,808) (1,569)

Cash flows from financing activities Net increase in short-term loans 857 433 8 Proceeds from long-term loans 37,600 60,800 354 Repayments of long-term loans (31,780) (34,088) (299) Proceeds from issuance of bonds 40,000 70,000 377 Redemption of bonds (50,000) (30,000) (471) Payment of long-term payables (1,515) (30,650) (14) Purchases of treasury stock — (0) — Proceeds from sales of treasury stock 0 — 0 Cash dividends paid to owners of parent (29,049) (27,118) (274) Cash dividends paid to non-controlling interests (122) (122) (1) Other (37,413) 35,052 (352) Net cash (used in) provided by financing activities (71,422) 44,304 (673) Net increase (decrease) in cash and cash equivalents 37,326 (17,359) 352 Cash and cash equivalents at beginning of year 63,332 80,691 597 Increase in cash and cash equivalents resulting from initial consolidation of a subsidiary 789 — 7 Cash and cash equivalents at end of year ¥ 101,448 ¥ 63,332 $ 957 * Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018.

Annual Report 2018 67 Financial Section Analysis of JR-West Operations

Non-Consolidated 20-Year Financial Summary

Years ended March 31 Millions of Billions of yen U.S. dollars*1 1999*2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*3 2014 2015 2016 2017 2018 2018 For the Year: Operating revenues ¥909.4 ¥885.1 ¥881.4 ¥869.8 ¥849.0 ¥845.8 ¥846.4 ¥851.2 ¥865.8 ¥879.4 ¥875.0 ¥816.7 ¥828.6 ¥862.1 ¥868.5 ¥873.6 ¥890.9 ¥954.2 ¥956.1 ¥976.2 $9,210 Transportation 795.5 773.9 773.1 770.2 752.3 750.8 750.9 756.5 765.8 781.7 773.7 720.0 728.0 758.7 769.1 780.6 797.0 850.0 849.6 867.8 8,187 Shinkansen 326.7 313.0 313.0 314.3 306.0 308.1 313.4 323.8 328.6 343.5 339.1 312.4 323.9 351.5 357.0 364.4 375.9 437.2 434.6 447.7 4,224 Kansai Urban Area 309.8 306.9 309.3 308.9 303.3 302.0 300.4 297.5 302.4 303.3 301.5 286.1 284.4 287.3 288.9 292.1 296.2 302.2 305.0 309.0 2,915 (Kyoto–Osaka–Kobe area) Other conventional lines 158.4 153.5 150.1 146.4 142.5 140.0 136.5 134.7 134.3 134.4 132.5 121.4 119.6 119.8 123.0 123.9 124.8 110.5 110.0 111.0 1,047

Operating expenses 796.7 786.0 784.4 770.3 745.7 740.4 736.4 742.3 756.8 769.6 772.9 758.2 752.8 772.8 766.1 771.8 778.9 817.0 820.6 831.9 7,848 Personnel 357.8 350.1 345.6 330.5 301.6 294.5 286.8 276.1 272.5 269.9 268.6 265.2 235.3 237.9 233.3 235.4 233.0 233.3 223.3 221.4 2,089 Non-personnel 277.7 276.5 275.0 281.2 288.2 291.0 300.5 320.0 337.9 338.8 333.9 318.6 333.4 339.5 342.7 351.6 369.0 392.4 394.3 407.6 3,845 Energy 40.5 39.3 38.2 39.2 38.4 36.6 36.9 34.8 34.3 34.4 38.2 33.5 33.7 36.2 37.1 43.1 45.3 44.1 40.5 44.0 415 Maintenance 108.0 112.3 114.3 116.8 122.6 121.9 127.1 140.7 148.9 148.6 135.8 128.1 135.8 133.3 136.5 139.0 146.7 152.8 157.1 161.4 1,523 Miscellaneous 129.2 124.9 122.4 125.1 127.1 132.4 136.4 144.4 154.5 155.8 159.8 156.9 163.8 169.9 169.1 169.5 176.9 195.4 196.6 202.1 1,906 Taxes 31.3 31.0 30.3 30.0 29.3 28.2 29.7 28.7 28.1 28.6 29.1 29.3 29.8 30.9 31.7 31.6 32.0 31.9 34.9 35.7 337 Rental payments, etc. 22.8 23.8 31.5 31.3 31.0 30.8 24.6 24.7 24.6 24.6 25.3 25.0 25.1 23.6 23.4 23.6 18.7 26.9 30.2 30.2 285 Depreciation expenses 107.0 104.4 101.8 97.1 95.4 95.7 94.5 92.5 93.5 107.5 115.9 119.9 129.1 140.7 134.7 129.3 126.0 132.3 137.6 136.8 1,290

Operating income 112.7 99.0 97.0 99.5 103.2 105.4 110.0 108.9 108.9 109.8 102.0 58.5 75.8 89.2 102.3 101.7 112.0 137.2 135.4 144.3 1,362 Recurring profit 50.5 42.3 43.4 54.0 61.3 65.0 74.3 75.9 77.6 79.9 73.4 29.8 48.5 62.8 77.5 79.9 92.1 116.7 118.4 128.6 1,213 Net income (loss) (5.6) 25.5 25.9 32.5 33.4 37.1 48.0 35.1 44.6 45.1 44.3 20.5 28.5 22.1 41.9 48.6 47.3 61.1 70.8 80.7 761 At Year-End: Total assets ¥2,242.0 ¥2,232.6 ¥2,247.8 ¥2,135.7 ¥2,116.8 ¥2,126.8 ¥2,098.0 ¥2,102.1 ¥2,151.8 ¥2,222.9 ¥2,215.1 ¥2,286.9 ¥2,405.7 ¥2,381.7 ¥2,333.3 ¥2,392.6 ¥2,444.4 ¥2,499.8 ¥2,598.9 ¥2,659.3 $25,088 Total net assets 312.0 346.6 403.3 388.6 410.7 439.3 474.3 502.2 533.3 552.4 560.7 568.1 581.3 588.3 611.6 639.4 631.5 666.0 709.9 761.7 7,185

*1 Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018. *2 In accordance with the Law on the Disposition of the Liability owned by the Japan National Railways Settlement Corporation, the Company paid ¥44.5 billion to the Mutual Aid Association in March 1999. *3 The Company has revised the allocation method for revenue from non-commuter passes on conventional lines (Kansai Urban Area and Other Lines) from the fiscal year ended March 2014. Figures in the above table for the fiscal year ended March 2013 have been retroactively calculated based on the new allocation method. Under the previous allocation method, transportation revenues for the Kansai Urban Area and Other Lines in that fiscal year totaled ¥291.4 billion and ¥120.6 billion, respectively.

Operating Revenues and Net Income (Loss) Operating Revenues Net Income (Loss) (right) Billions of yen

100

80

600 60

400 40

200 20

0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 0 O R N I L

68 WEST JAPAN RAILWAY COMPANY Millions of Billions of yen U.S. dollars*1 1999*2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*3 2014 2015 2016 2017 2018 2018 For the Year: Operating revenues ¥909.4 ¥885.1 ¥881.4 ¥869.8 ¥849.0 ¥845.8 ¥846.4 ¥851.2 ¥865.8 ¥879.4 ¥875.0 ¥816.7 ¥828.6 ¥862.1 ¥868.5 ¥873.6 ¥890.9 ¥954.2 ¥956.1 ¥976.2 $9,210 Transportation 795.5 773.9 773.1 770.2 752.3 750.8 750.9 756.5 765.8 781.7 773.7 720.0 728.0 758.7 769.1 780.6 797.0 850.0 849.6 867.8 8,187 Shinkansen 326.7 313.0 313.0 314.3 306.0 308.1 313.4 323.8 328.6 343.5 339.1 312.4 323.9 351.5 357.0 364.4 375.9 437.2 434.6 447.7 4,224 Kansai Urban Area 309.8 306.9 309.3 308.9 303.3 302.0 300.4 297.5 302.4 303.3 301.5 286.1 284.4 287.3 288.9 292.1 296.2 302.2 305.0 309.0 2,915 (Kyoto–Osaka–Kobe area) Other conventional lines 158.4 153.5 150.1 146.4 142.5 140.0 136.5 134.7 134.3 134.4 132.5 121.4 119.6 119.8 123.0 123.9 124.8 110.5 110.0 111.0 1,047

Operating expenses 796.7 786.0 784.4 770.3 745.7 740.4 736.4 742.3 756.8 769.6 772.9 758.2 752.8 772.8 766.1 771.8 778.9 817.0 820.6 831.9 7,848 Personnel 357.8 350.1 345.6 330.5 301.6 294.5 286.8 276.1 272.5 269.9 268.6 265.2 235.3 237.9 233.3 235.4 233.0 233.3 223.3 221.4 2,089 Non-personnel 277.7 276.5 275.0 281.2 288.2 291.0 300.5 320.0 337.9 338.8 333.9 318.6 333.4 339.5 342.7 351.6 369.0 392.4 394.3 407.6 3,845 Energy 40.5 39.3 38.2 39.2 38.4 36.6 36.9 34.8 34.3 34.4 38.2 33.5 33.7 36.2 37.1 43.1 45.3 44.1 40.5 44.0 415 Maintenance 108.0 112.3 114.3 116.8 122.6 121.9 127.1 140.7 148.9 148.6 135.8 128.1 135.8 133.3 136.5 139.0 146.7 152.8 157.1 161.4 1,523 Miscellaneous 129.2 124.9 122.4 125.1 127.1 132.4 136.4 144.4 154.5 155.8 159.8 156.9 163.8 169.9 169.1 169.5 176.9 195.4 196.6 202.1 1,906 Taxes 31.3 31.0 30.3 30.0 29.3 28.2 29.7 28.7 28.1 28.6 29.1 29.3 29.8 30.9 31.7 31.6 32.0 31.9 34.9 35.7 337 Rental payments, etc. 22.8 23.8 31.5 31.3 31.0 30.8 24.6 24.7 24.6 24.6 25.3 25.0 25.1 23.6 23.4 23.6 18.7 26.9 30.2 30.2 285 Depreciation expenses 107.0 104.4 101.8 97.1 95.4 95.7 94.5 92.5 93.5 107.5 115.9 119.9 129.1 140.7 134.7 129.3 126.0 132.3 137.6 136.8 1,290

Operating income 112.7 99.0 97.0 99.5 103.2 105.4 110.0 108.9 108.9 109.8 102.0 58.5 75.8 89.2 102.3 101.7 112.0 137.2 135.4 144.3 1,362 Recurring profit 50.5 42.3 43.4 54.0 61.3 65.0 74.3 75.9 77.6 79.9 73.4 29.8 48.5 62.8 77.5 79.9 92.1 116.7 118.4 128.6 1,213 Net income (loss) (5.6) 25.5 25.9 32.5 33.4 37.1 48.0 35.1 44.6 45.1 44.3 20.5 28.5 22.1 41.9 48.6 47.3 61.1 70.8 80.7 761 At Year-End: Total assets ¥2,242.0 ¥2,232.6 ¥2,247.8 ¥2,135.7 ¥2,116.8 ¥2,126.8 ¥2,098.0 ¥2,102.1 ¥2,151.8 ¥2,222.9 ¥2,215.1 ¥2,286.9 ¥2,405.7 ¥2,381.7 ¥2,333.3 ¥2,392.6 ¥2,444.4 ¥2,499.8 ¥2,598.9 ¥2,659.3 $25,088 Total net assets 312.0 346.6 403.3 388.6 410.7 439.3 474.3 502.2 533.3 552.4 560.7 568.1 581.3 588.3 611.6 639.4 631.5 666.0 709.9 761.7 7,185

Total Assets and Total Net Assets Total Assets Total Net Assets Billions of yen

3,000

2,400

1,800

1,200

600

0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 T A T N A

Annual Report 2018 69 Financial Section Analysis of JR-West Operations

Capital Expenditures and Cash Flows Years ended March 31

Capital Expenditures Millions Billions of U.S. of yen dollars* 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 Consolidated basis:

Depreciation expenses ¥112.8 ¥128.0 ¥137.0 ¥141.9 ¥150.8 ¥169.3 ¥160.8 ¥153.9 ¥149.5 ¥156.6 ¥162.7 ¥163.5 $1,543

Capital expenditures excluding a portion contributed by local governments, etc. 144.9 187.9 163.9 210.1 260.0 195.4 152.9 166.7 225.6 233.1 192.4 169.4 1,598

Non-consolidated basis:

Depreciation expenses ¥93.5 ¥107.5 ¥115.9 ¥119.9 ¥129.1 ¥140.7 ¥134.7 ¥129.3 ¥126.0 ¥132.3 ¥137.6 ¥136.8 $1,290

Capital expenditures excluding a portion contributed by local governments, etc. 117.2 159.6 128.4 165.5 208.5 150.8 124.8 144.5 186.4 198.7 159.8 127.8 1,206

Cash Flows (Consolidated Basis) Millions Billions of U.S. of yen dollars* 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018

Net cash provided by operating activities ¥ 188.6 ¥ 222.1 ¥ 178.8 ¥ 161.3 ¥ 223.2 ¥ 206.2 ¥ 238.0 ¥ 237.7 ¥ 223.6 ¥ 259.8 ¥ 234.1 ¥ 275.1 $ 2,595

Net cash used in investing activities (131.7) (179.2) (172.6) (208.7) (246.2) (199.1) (154.7) (165.3) (212.9) (233.2) (295.8) (166.3) (1,569)

Free cash flows 56.8 42.9 6.1 (47.4) (23.0) 7.0 83.2 72.3 10.7 26.6 (61.6) 108.7 1,025

Net cash provided by (used in) financing activities (54.6) (55.8) (10.1) 54.6 51.4 (36.8) (85.2) (47.8) 1.6 (31.3) 44.3 (71.4) (673)

* Yen figures have been converted into U.S. dollars at the rate of ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2018.

Depreciation and Capital Expenditures Depreciation and Capital Expenditures Cash Flows (Consolidated Basis) (Non-Consolidated Basis) (Consolidated Basis) Depreciation Expenses Depreciation Expenses Net Cash Provided by Operating Activities Capital Expenditures Excluding a Portion Contributed by Capital Expenditures Excluding a Portion Contributed by Net Cash Used in Investing Activities Local Governments, etc. Local Governments, etc. Net Cash Provided by (Used in) Financing Activities Billions of yen Billions of yen Billions of yen

300 250 300

240

200 180

120 200 150 60

0

100 –60 100 –120

50 –180

–240

0 07 08 09 10 11 12 13 14 15 16 17 18 0 07 08 09 10 11 12 13 14 15 16 17 18 –300 07 08 09 10 11 12 13 14 15 16 17 18

70 WEST JAPAN RAILWAY COMPANY Investor Information

As of March 31, 2018

Stock Price and Trading Volume JRW S P N A TOPI P

9,000 24,000 2,000

8,000 TOPI 21,000 1,750 7,000 18,000 1,500 6,000 JRW 15,000 5,000 1,250

12,000 4,000 1,000

N A 9,000 3,000 750

2,000 6,000 OCT. MAR. SEP. MAR. SEP. MAR. SEP. MAR. SEP. MAR. SEP. MAR. SEP. MAR. SEP. MAR. SEP. MAR. SEP. MAR. SEP. MAR. 500 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18

Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Fiscal 2011 Fiscal 2012 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H JR-West High (¥) 5,880 5,830 5,900 5,400 4,840 3,540 3,430 3,495 3,420 3,420 3,530 Low (¥) 4,910 4,840 4,000 4,460 2,949 2,952 2,993 2,986 2,700 2,905 3,080 Average Daily Trading 688,486 648,094 861,620 695,220 912,513 782,785 660,959 713,580 945,908 814,979 812,162 Volume (Shares) Nikkei Average (¥) 17,287.65 16,785.69 12,525.54 11,259.86 8,109.53 10,133.23 11,089.94 9,369.35 9,755.10 8,700.29 10,083.56 TOPIX (Points) 1,713.61 1,616.62 1,212.96 1,087.41 773.66 909.84 978.81 829.51 869.38 761.17 854.35

Fiscal 2013 Fiscal 2014 Fiscal 2015 Fiscal 2016 Fiscal 2017 Fiscal 2018 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H JR-West High (¥) 3,510 4,660 4,835 4,575 5,008 7,178 9,488 8,575 7,058 7,614 8,252 8,636 Low (¥) 3,035 3,260 3,840 4,007 3,951 4,693 6,219 6,301 5,598 6,066 7,086 7,151 Average Daily Trading 662,210 789,675 861,142 803,102 675,187 883,964 969,087 997,114 897,546 729,223 592,374 656,129 Volume (Shares) Nikkei Average (¥) 8,870.16 12,397.91 14,455.80 14,827.83 16,173.52 19,206.99 17,388.15 16,758.67 16,449.84 18,909.26 20,356.28 21,454.30 TOPIX (Points) 737.42 1,034.71 1,194.10 1,202.89 1,326.29 1,543.11 1,411.16 1,347.20 1,322.78 1,512.60 1,674.75 1,716.30

• Based on prices on the First Section of the Tokyo Stock Exchange. • The closing prices for the Nikkei Index and TOPIX are recorded at the end of the period (month). • The Company conducted a stock split on July 1, 2011, at a ratio of 100 ordinary shares for each ordinary share. Stock prices displayed above have been adjusted to reflect the stock split.

Number of Shareholders: 144,696

Major Shareholders Number of Shares Held (Shares) Equity Ownership (%) The Master Trust Bank of Japan, Ltd. (Trust Unit) 9,385,700 4.84 Japan Trustee Services Bank, Ltd. (Trust Unit) 8,114,600 4.19 Sumitomo Mitsui Banking Corporation 6,400,000 3.30 The Bank of Tokyo-Mitsubishi UFJ, Ltd. 6,300,000 3.25 The Master Trust Bank of Japan, Ltd. (Trust Unit 9) 4,424,900 2.28 Nippon Life Insurance Company 4,000,000 2.06 JR-West Employee Stock-Sharing Plan 3,458,900 1.79 Japan Trustee Services Bank, Ltd. (Trust Unit 5) 3,448,100 1.78 STATE STREET BANK WEST CLIENT – TREATY 505234 3,311,442 1.71 Mizuho Bank, Ltd. 3,250,000 1.68 Total 52,093,642 26.89

Note: For the purpose of computing the shareholding ratios, 648 shares of treasury stock are excluded from the total number of issued shares of the Company.

Annual Report 2018 71 Financial Section Consolidated Subsidiaries

As of March 31, 2018

(Millions of yen) (%) Segment Name Paid-in Business Equity Capital Ownership Transportation Chugoku JR Bus Company 2,840 Bus Services 100.0 Operations West Japan JR Bus Company 2,110 Bus Services 100.0 JR West Miyajima Ferry Co., Ltd. 1,100 Ferry Services 100.0 Sagano Scenic Railway 200 Railway Services 100.0 Retail West Japan Railway Daily Service Net Company 2,300 Sales of Goods and 100.0 Business Food Services West Japan Railway Food Service Net Company 899 Sales of Goods and 100.0 Food Services Japan Railway Service Net Hiroshima Company 300 Sales of Goods and 100.0 Food Services Japan Railway Service Net Okayama Company 230 Sales of Goods and 100.0 Food Services Japan Railway West Trading Company 200 Wholesale 100.0 Japan Railway Service Net Kanazawa Company 200 Sales of Goods and 100.0 Food Services Japan Railway Service Net Fukuoka Company 200 Sales of Goods and 100.0 Food Services West Japan Railway Sanin Development Company 200 Other Retail Businesses 100.0 West Japan Railway Isetan Limited 100 Department Store 60.0 West Japan Railway Fashion Goods Co., Ltd. 100 Sales of Goods and 100.0 Food Services Real Estate Kyoto Station Building Development Co., Ltd. 6,000 Real Estate Sales and Leasing 61.9 Business Osaka Terminal Building Company 5,500 Real Estate Sales and Leasing 76.2 Tennoji Shopping Center Development Co., Ltd. 1,800 Shopping Centers 100.0 JR West Japan Shopping Center Development 1,200 Shopping Centers 100.0 Company Kyoto Station Center Co., Ltd. 1,000 Shopping Centers 59.1 JR-West Japan Real Estate & Development 620 Real Estate Sales and Leasing 100.0 Company Toyama Terminal Building Company 550 Shopping Centers 63.6 Sanyo SC Development Co., Ltd. 300 Shopping Centers 100.0 Kanazawa Terminal Development Co., Ltd. 300 Shopping Centers 80.0 KOBE SC DEVELOPMENT COMPANY 98 Shopping Centers 94.0 Chugoku SC Development Co., Ltd. 75 Shopping Centers 100.0 Wakayama Station Building Co., Ltd. 75 Shopping Centers 82.5 Shin-Osaka Station Store Company 60 Shopping Centers 100.0 JR West Osaka Development Co., Ltd. 50 Shopping Centers 100.0 Ryoju Properties Co., Ltd. 50 Real Estate Sales and Leasing 70.0 Kyoto Eki-Kanko Department Store Company 40 Shopping Centers 96.3

72 WEST JAPAN RAILWAY COMPANY (Millions of yen) (%) Segment Name Paid-in Business Equity Capital Ownership Other West Japan Railway Hotel Development Limited 18,000 Hotel 100.0 Businesses Nippon Travel Agency Co., Ltd. 4,000 Travel Services 79.8 Hotel Granvia Hiroshima Co., Ltd. 2,800 Hotel 93.8 Hotel Granvia Osaka Co., Ltd. 2,200 Hotel 53.8 Hotel Granvia Okayama Co., Ltd. 2,054 Hotel 94.2 DAITETSU KOGYO Co., LTD. 1,232 Construction 51.6 Wakayama Terminal Building Co., Ltd. 1,000 Hotel 69.1 Sannomiya Terminal Building Co., Ltd. 500 Hotel 100.0 JR West Japan LINEN Co., Ltd. 290 Other 97.4 West Japan Marketing Communications, Inc. 200 Advertising Services 100.0 WEST JAPAN RAILWAY TECHNOS CORPORATION 161 Maintenance for Railcar 62.7 Facilities JR West Japan General Building Service Co., Ltd. 130 Other 100.0 West Japan Railway MAINTEC Co., LTD. 100 Cleaning and Maintenance 100.0 Works Railway Track and Structures Technology Co., Ltd. 100 Construction 100.0 West Japan Railway Techsia Co., Ltd. 100 Maintenance for Machinery 69.1 West Japan Electric Technologys Co., Ltd. 90 Electric Works 100.0 West Japan Electric System Co., Ltd. 81 Electric Works 100.0 JR West Japan MARUNIX Co., Ltd. 80 Other 100.0 WEST JAPAN RAILWAY SHINKANSEN TECHNOS 80 Maintenance for Railcar 100.0 CORPORATION Facilities JR WEST BUILT Co., LTD. 70 Construction 84.0 JR-West Japan Consultants Company 50 Construction Consultation 100.0 JR West Financial Management Co., Ltd. 50 Other 100.0 JR West Customer Relations Co., Ltd. 50 Other 100.0 JR West Japan Transportation Service Co., Ltd. 50 Other 100.0 JR WEST IT Solutions Company 48 Information Services 100.0 West Japan Railway Hiroshima MAINTEC Co., LTD. 35 Cleaning and Maintenance 100.0 Works West Japan Railway Kanazawa MAINTEC Co., LTD. 30 Cleaning and Maintenance 100.0 Works West Japan Railway Fukuoka MAINTEC Co., LTD. 30 Cleaning and Maintenance 100.0 Works West Japan Railway Rent-A-Car & Lease Co., LTD. 30 Rent-a-Car Services 78.6 West Japan Railway Okayama MAINTEC Co., LTD. 25 Cleaning and Maintenance 100.0 Works West Japan Railway Fukuchiyama MAINTEC Co., LTD. 20 Cleaning and Maintenance 100.0 Works West Japan Railway Yonago MAINTEC Co., LTD. 20 Cleaning and Maintenance 100.0 Works West Japan Railway WelNet Co., Ltd. 10 Other 100.0 JR West INNOVATIONS Co., LTD. 10 Investment 100.0

Annual Report 2018 73 Financial Section Corporate Data

As of March 31, 2018

Company Name Employees West Japan Railway Company Employees (Non-consolidated) 25,291 Employees at work (Consolidated) 47,869 Head Office 4-24, Shibata 2-chome, Kita-ku, Osaka 530-8341, Japan Number of Subsidiaries 153 (incl. 64 consolidated subsidiaries) Date of Establishment April 1, 1987 Stock Listings Tokyo, Nagoya, and Fukuoka Common Stock stock exchanges ¥100 billion Transfer Agent Shares Outstanding Sumitomo Mitsui Trust Bank, Limited 193,735,000

Main Features of Business

Transportation Operations Non-Transportation Operations

• Railway Services • Retail Business Total route length* Sales of Goods and Food Services 5,008.7 km Department Store Shinkansen: 812.6 km Wholesale Conventional lines: 4,196.1 km Other Retail Businesses

* The total route length is the sum of Shinkansen and conventional lines. • Real Estate Business Number of stations Real Estate Sales and Leasing 1,202 Shopping Centers

Number of rolling stock • Other Businesses 6,498 Hotel Travel Services Number of passengers Rent-a-Car Services Total: 1,913 million Advertising Services Shinkansen: 85 million Maintenance for Railcar Facilities Conventional lines: 1,847 million Maintenance for Machinery Electric Works Passenger-kilometers Construction Consultation Total: 59,291 million Cleaning and Maintenance Works Shinkansen: 21,022 million Information Services Conventional lines: 38,269 million Construction Other Train-kilometers per day Total: 512 thousand Shinkansen: 124 thousand Conventional lines: 388 thousand

• Bus Services

• Ferry Services

74 WEST JAPAN RAILWAY COMPANY For further information, please contact the Investor Relations section of the Corporate Planning Headquarters at the West Japan Railway Company Head Office.

4-24, Shibata 2-chome, Kita-ku, Osaka 530-8341, Japan Tel: 81-6-6375-8981 Fax: 81-6-6375-8976 E-mail: [email protected] URL: http://www.westjr.co.jp/global/en/ir/

Annual Report 2018 75 WEST JAPAN RAILWAY COMPANY Annual Report 2018 Annual Report

Printed in Japan